Despite the current climate of financial instability, lenders fail to carry out sufficient credit checks during the unsecured loan application process. Last year 2.9 million loan applicants were not asked for proof of income to back up the figures provided during their applications. As a result millions could find themselves in financial difficulty and unable to meet their repayments.

YouGov figures state that 4.1 million unsecured loans were issued last year worth £29.9 billion. However only 21% (663,617) of these borrowers actually provided proof of income. 6% (249,480) of people who took out unsecured loans also ended up incurring additional debts to keep up repayments

uSwitch.com is calling for further measures to be introduced to protect consumers. The company says the changes to the Banking Code announce this week do not go far enough. It is now compulsory to carry out a credit reference agency check alongside at least one of the following three checks; income and financial commitments, historical financial behaviour or credit scoring.  But effectiveness of these checks depends on which are carried out. For example, a credit reference check plus credit scoring would provide a safe guide to someone’s ability to repay debt. However, a credit reference check, in conjunction with information on how credit has been handled in the past, would be less effective.    
 
“With more than 7,716 loan repayments being missed every day and record write-offs, you might think that lenders would have learnt their lesson, but the potential profits have clearly been too good to resist,” comments Mike Naylor, personal finance expert at uSwitch.com. “While the credit crunch has forced lenders to tighten up their lending criteria, these latest amendments to the Banking Code do not go far enough to help promote responsible lending in all cases.”