Bank of England gets tough on lenders over credit risk-taking
The Bank of England has told lenders to prove they are not taking on too much risk in the latest step of its crackdown on soaring consumer lending.
The Bank's Prudential Regulation Authority (PRA) has ordered firms to provide details by September as it tightens up scrutiny of the sector.
It follows last week's warning from Governor Mark Carney that lenders were "forgetting the lessons of the past", with the Bank's raising the alarm over signs of more lax lending controls and ballooning borrowing.
The PRA, which has the power to force firms to rein in lending, said it was "requesting evidence from all firms with material exposures to consumer credit" of how they are protected against risks of consumer arrears.
Firms will have until September to respond, when they will also see the stress tests for losses on consumer credit lending, which has been brought forward from November.
It comes after t he Bank announced in last week's financial stability report that it will force banks to put aside another £11.4 billion over the next 18 months.
The Bank said it was concerned over surging levels of unsecured consumer borrowing on credit cards and car finance, which is rising by more than 10% a year and outstripping incomes.
The bank's recent comments have raised worries that lenders are returning to their pre-crisis ways, with an abundance of 0% interest credit cards, personal loans available at under 5% and rocketing car finance borrowing.
While the PRA said it did not believe growth in lending had been primarily driven by moves to lower credit checks, it warned lenders might only be able to achieve their growth plans by loosening underwriting standards.
It reiterated concerns highlighted in last week's financial stability report that lenders were basing their lending on recent "benign" economic conditions and low numbers of borrowers falling into arrears.
They have also failed to take into account the rising overall debts of consumers, the PRA added.
It said: "In an environment of rapid growth in consumer credit, interest margins have fallen and there was evidence of weakness in some aspects of underwriting, so lenders are more vulnerable to losses in stress.
" Overall, the PRA judges that the resilience of consumer credit portfolios is reducing."
The bank also announced plans last week to reaffirm rules for affordability tests on mortgage lending, ensuring borrowers can meet repayments in the event that interest rates increase to about 7%, or standard variable rates plus 3%.
It comes amid mounting speculation over an imminent interest-rate hike, with a growing split among policymakers after with three out of the eight members on the Monetary Policy Committee voted last month for a rise to 0.5% due to concerns over soaring inflation.
This marked the biggest dissent since 2011.