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Lenders told to be vigilant over loans

Lenders have been told to raise their game after regulators highlighted the risks in the consumer credit market.

The Bank of England’s Prudential Regulation Authority (PRA) has highlighted various concerns during a review of lending in personal loans, credit cards and car finance.

While it did not find looser credit scoring on the scale seen before the financial crisis it has told banks and others to address specific concerns.

They must respond by September.

The Bank has consistently expressed the need for vigilance over double-digit growth in the consumer credit market during “benign” economic conditions.

Last week, it said banks needed to find a further £11.4bn in the next 18 month to beef up their finances against the risk of bad loans.

They will also face earlier stress tests to ensure they can cope with loans failing to be repaid.

Now the PRA review has raised various issues including:

  • A need for lenders to assess the credit scoring of a “new generation of borrowers” who have had no experience of higher interest rates
  • The need to take a borrower’s total debt, including mortgage debt, into account when lending
  • Firms should justify assumptions when setting 0% credit card balance transfer deals

No new rules are being outlined, but company boards are being made directly responsible for the response to the PRA.

Source: business

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