Easy Credit Comes Back To Bite Britons

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Consumer debt has been skyrocketing in Britain over the last decade. In 2007, just before the global financial meltdown, the five biggest British Banks launched aggressive expansion campaigns, radically ramping up the already easy-access to credit.


Bankers and economists are hoping the worst may be over for consumer debt. Americans are starting to pay down some of the debts they ran up on credit cards and other devices in recent years. But in Briton, it seems these troubles are only starting. Vicki Barker reports from London.

VICKI BARKER: Theresa Aflabi(ph) strolls through the Westfield mega-mall in Shepherd's Bush, London, a couple of shopping bags dangling from her arm. A few years ago, she says, there would've been a lot more. Aflabi, a psychiatric nurse, racked up more than $20,000 in credit card debt on a $30,000 salary. How?

(Soundbite of laughter)

Ms. THERESA AFLABI: Shopping, (unintelligible) dinner, everything.

BARKER: In the past year, while their American counterparts were scrambling to quantify and then grapple with massive defaults on credit card debts, British bankers tended to be a little smug. They argued they'd been more prudent. But the facts and the figures don't back that up.

(Soundbite of store check-out)

BARKER: Up until the year 2000, U.S. and British consumers were spending - or arguably overspending - at similar rates. But then they began to diverge. Americans were still waving the plastic around, but the amount they owed versus the amount they made each year - their leverage - that figure was still growing but growing more slowly. Not so in Britain.

It's all down to that magic carpet ride - rising house prices. Nathan Powell watches the British financial sector for the global consulting firm RiskMetrics.

Mr. NATHAN POWELL (RiskMetrics): From 1990 up to about 2007, when home prices peaked, home prices in the U.K. tripled. In the U.S. they only doubled. And the difference between doubling or tripling makes a big difference in the amount of leverage that you can take.

BARKER: But even though the value of their homes was rising faster, Britons' actually salaries were growing more slowly than in America. The result? British consumers inhaled even more financial fairy dust than their American cousins.

(Soundbite of advertisement)

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BARKER: And it was just as that unsustainable wave was peaking in 2007, just ahead of the global financial meltdown, that the five biggest British banks launched aggressive expansion campaigns, radically ramping up the already easy access to credit.

(Soundbite of advertisement)

Unidentified Woman #2: (Singing) Your Access is the way to pay. You'll never be embarrassed, embarrassed. With Access everything's okay.

Unidentified Man: Access, doesn't everyone?

BARKER: The big question for the banks is, with the recession deepening and job losses mounting here, how many of those customers are going to default? In America, which invented the consumer society, families began cutting back their spending about a year before the downturn began. Apparently their well-tuned antennae started picking up danger signals even before the economists did. Here in Britain, where the consumer society is barely a generation old, consumer debt is still growing.

Alan O'Sullivan writes for the Daily Mail newspaper.

Mr. ALAN O'SULLIVAN (Columnist, Daily Mail): Even though after a year of terrible headlines, people are still going out there and chasing debt, even though they can't afford it. So they're turning to loan sharks, doorstep lenders, incredibly high-interest credit cards of 50 percent plus.

BARKER: And there may be worse to come. Analysts say the level of credit card debt defaults here will likely peak over the next 12 months.

For NPR News, I'm Vicki Barker in London.

(Soundbite of song, "Busted")

Mr. RAY CHARLES (Singer): (Singing) My bills are all due and the baby needs shoes and I'm busted. Cotton is down to a quarter a pound, but I'm busted.

INSKEEP: This is NPR News.

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