MPs claim lenders lure young into debt

MPs have condemned credit card companies and debt consolidation firms for encouraging young people and other vulnerable groups to borrow beyond their means, after a report by the citizen's advice bureau revealed a jump in the level of consumer debt handled by its advisers.

The service dealt with problem debts worth £1.2bn last year, a rise of 39% during the past four years. The report, published today by the National Association of Citizens Advice Bureaux (Nacab), blamed the dramatic increase on excessive spending on credit cards, store cards, mail order and hire purchase agreements.

The report also said that among the people in its survey total average debt per household had reached £10,700 while the average household income was £800 a month. A third of those surveyed owed more than £10,000.

Labour MP Jim Cousins, a member of the Treasury select committee, said he believed younger people had been targeted by credit card companies and encouraged to take on large debts.

"Young people who leave education with debts are deluged with offers of cheap credit once they get their first job. The relentless pressure to take out a credit card and build up debt is followed up by banks that want them to convert it to a loan. But too often the escape route is a trap," he said.

Paul Flynn, MP for Newport West, said debt consolidation companies which advertise on daytime television and in national newspapers also encourage consumers to believe they can keep on spending without considering whether they can afford repayments.

"They have fostered a belief that not only is debt unimportant, but there is also an easy route out, when in fact the companies charge fees for their services, increase the total of debt and increase the length of indebtedness."

David Harker, Nacab chief executive, said that, while many debts related to mortgage arrears and council tax arrears, 70% were consumer debts. He urged lenders to treat people in financial difficulties fairly and sympathetically. He also warned consumers to think twice before borrowing and to check they can afford repayments.

Malcolm Hurlston, a spokesman for the trade body Credit Card Research Group, denied credit card companies were a major cause of consumer debt problems. He said the report highlighted that most people had made good borrowing decisions, but had found themselves in difficulties after their circumstances changed.

"Repayments are keeping pace with the extra borrowing, which shows that people are making sensible decisions. The problem might come if there is a recession and more people find their circumstances have changed," he said.

The report follows last week's figures from the Bank of England showing that British households have stacked up a record £700bn in debt. Total lending rose by £6.14bn in July, the highest figure since records began in 1993. Credit card debt and personal loans rose 12% in the past year to a record high.