Is debt waiver the answer to the protection gap and the end of the PPI mis-selling saga? Paul Walsh finds out.
Despite government attempts to address the supply of lending by keeping interest rates low and establishing schemes such as Help to Buy, the appetite for banks and building societies to lend without protection hasn’t altered, according to ResPublica.
The think-tank, whose director was credited with the concept of David Cameron’s ‘Big Society’, presented a report into UK lending to MPs last month. The report, drawing on data from the UK and other lending markets establishes a strong relationship between the reluctance of lenders to broaden lending due to their lack of confidence in borrowers future prospects and absence of viable loan protection products.
This link then results in a negative effect on the UK economy worth billions. The ResPublica green paper, Risk Waiver: closing the protection gap and easing the flow of credit, highlights the fact that the UK economy is losing almost £40bn per year due to a reduction in the availability of loans.
The paper calculates that the loss to the GDP from the contraction in lending between 2007 and 2012 cost Britain an economic hit of about £193bn. A big part of the solution, it concludes, will be products like debt waiver, that can credibly help restore both lenders and borrowers confidence in the consumer credit market again.
The paper’s author believes that the safeguard will build confidence in both lenders to lend and borrowers to borrow and, as a result, could potentially unlock billions in consumer spending. The think-tank also urged government to influence state-owned banks to act ‘for the greater good’ and lead its peers by adopting the safeguard.
MPs at the paper’s launch came out in support of the paper. Heather Wheeler, MP, said: “Despite Government attempts to get financial institutions lending again, since the recession, almost all lenders have downsized their appetite for risk.
Not enough has been done by lenders reacting to government actions to find a solution to lessen credit risk and kick-start the UK economy. I believe introducing a debt waiver product will do this.”
