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Economics is fun
There's a lot of fuss on our company intranet site right now about lending and such.. Apparently Panorama thinks that banks deliberately lend money to people who can't possibly pay it back.. To me, that sounds like a really dumb idea, equivalent to banks just giving money away. What could we possibly hope to achieve by doing this? We're not in the business of going out of business..

Alternatively, the TV says, we're giving credit to people who are likely to misuse it, spend more than they can afford, and eventually pay it off after refinancing their homes and being charged endless amounts of interest in the meantime. To be honest, my response to this is 'so what?'... Whatever happened to personal responsibility?

Ultimately, these people generate a demand for credit (which is perfectly legal), and we as a bank are supplying that credit to them within the legal framework that exists. Assuming it's not against the law, we can do what we want, and if we don't then somebody else will. Credit will always be offered to poor people who can barely pay it back until there are strong laws (backed up with implementation plans) that prohibit such lending.

I'll agree that yes, banks could be more responsible, but why should they if they can make more money by being less responsible? If they're not targeting those customers, another company will, after all - there's money to be made, demand exists, so supply will appear, that's how the system works. In fact, it's better for the consumers if more banks are offering them credit, because then competition will drive down the cost to the customer. The problem is when customers accept credit from multiple banks, but that's a Data Protection Act issue that I'll come to later..

So we have a system where people who are rubbish with money want credit. There is no law to say they cannot have it. Somebody will offer them credit, because this is how economics works. The only reasonable thing for other banks to do is join in and provide competitive forces to create an optimal marketplace.

There are two ways that I can think of for The Great British Public to change this system. The first is for them to lobby the banks themselves, take their business elsewhere, and provide market pressure in order to achieve the desired response. Of course, if you boycott everybody who offers credit to the mass market, then you find yourself without a bank. And if public opinion can't stop the exodus of call centres to offshore locations, then I doubt an issue as boring as irresponsible lending is going to get anybody paying attention.

The alternative is for the GBP to elect a government who will legislate to protect the vulnerable. And I don't mean by coming up with laws that prohibit X and ban Y. I mean by coming up with a decent code of conduct that enables banks to make better lending decisions. Enhanced sharing of customer data via credit reference agencies would be a start. Relaxation of data protection rules for the purposes of scoring customers would help a great deal, because banks don't necessarily want poor customers to take up credit. And ideally a comprehensive guide on who not to lend to. If the government want us to stop lending to the 'mentally incapacitated', for example, then mental health organisations need to make lists available so that we can screen out those customers. Banks operate on a 'best endeavours' basis, working with the information they have. That information is limited by law, just as lending to poor people is permitted by law. Both of those things need to change in order to fix the system.

And yet there's a more dangerous perception, whereby people convince themselves that banks deliberately target poor customers. It's not about offering them credit - as I've said, we do that because there's nothing to tell us not to, and they want it, and it's not the responsibility of a limited company to avoid making money in the interests of the public - that's why we have government.

But no, there is a perception among the public, fuelled by tabloids, that we deliberately go after poor people, because they make us more money. This is in spite of the fact that the risk of bad debt offsets the profitability of charges and increased interest, which means they don't actually make us very much at all.. But still, people think we go after them because it's an easy buck..

Today I'm sending out an e-mail advertising loans to 70,000 customers. The following is the criteria that has been used to select those customers:

Exclude Collections Customers
Exclude Customers in receipt of DSS payments for Job Seekers Allowance
Exclude Customers Over 65
Exclude Customers Under 18
Exclude Customers who are 'mentally incapacitated'
Exclude Customers whose Credit Cards have consistently performed poorly
Exclude Customers who are over their credit card limit or who have recently missed a payment
Exclude Customers in Risk Bands 4+

The risk bands correspond to various customer attributes, but a general measure would be that risk bands 1-3 (which this mailing went out to) have an average of £1,200 to £1,450 in monthly net salary. That corresponds to an average of over £27,000 per year (gross), taking into account estimated earnings held with other banks.

Now to me, that looks fine.. the GBP has nothing to fear from Lloyds TSB, because we're not out to target their old and their weak. Of all the customers for whom we have an e-mail address, every single thing we've done to cut that down has been designed to 'improve' the creditworthiness of those customers, and avoid trying to sell loans to people who might not be able to keep up repayments.

So yes, companies exist to make money, if they're not making money then somebody else will and they'll go out of business. The only way to limit that is by consumer action (which is fairly fruitless), or legislation. It's not for companies to decide together not to make money - that's anti-competitive, and breaks the system.

End rant.. :o)

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In your experience are there banks that are less ethical than Lloyds?

Obviously excluding the loan shark type companies, I mean the bigger, established banks.

There are banks that target a different customer segment, typically a higher risk one.. For example, Capital One have very relaxed credit criteria, and engage in large direct mail campaigns to try to maximise their customer base (whereas lots of banks will tend not to mail non-franchise customers directly).

But I wouldn't necessarily say that those banks were less ethical, as such. They just have different target audiences. If the banks weren't offering credit to those people, then the loan sharks would have their business instead, so it's not such a bad thing that they exist.. More choice for the consumer, hooray!

We're unfortunately pushed into this "corner" by people somehow believing that if they fuck up their life then somebody else should be at fault. You answered your own not-quite-question really. People just don't have any personal responsibility.

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