UK Overtakes U.S. for Personal Debt

by Mike Bevel, CollectionIndustry.com

Not that it?s a race or anything; and not that the ?winners? in this race are actually winners. However, for those keeping score, the UK has outpaced the U.S. in personal debt. For the U.S., a country that loves its credit cards, the UK is proving to be just as love-struck: showing up with some roses, a bottle of wine, and twinkle in its eye.

The total debt of the UK population, secured and unsecured, now represents 104% of gross domestic product compared to 92% in the US. At the same time, outstanding levels of consumer credit hit 18% of GDP in the UK, compared with 17% in the US.

To give the story even more of an international feel, the average UK shopper now has more consumer credit than their counterparts in France, Germany and Italy combined, according to a story carried out by PricewaterhouseCoopers.

Elsewhere, PwC warns that credit card holders can expect to take a major financial hit following the introduction of consumer protection rules which could cost lenders £1 billion a year ? nearly $2 billion U.S.

The research reveals credit card margins continued to fall in 2006, as the industry came under unprecedented governmental scrutiny. Richard Thompson, a partner at PwC, said: “With fierce competition and rising bad debts already hitting issuers, it’s hard to see how the banks will absorb £1bn of lost revenues. We are likely to see a ‘waterbed effect,’ whereby charges pushed down in one area pop up somewhere else.

“To put it in perspective, card issuers would have to levy annual fees costing the average credit card user £35 a year (US$67) to recoup the potential £1bn loss. If lenders tried to recoup this through interest rates alone, we would see APRs increase by two percentage points on average.”

He added: “In fact, we are probably already seeing the beginning of this effect. Ultimately, the impact of regulation could hasten the return of annual charges as the norm ? something the industry has so far managed to do without.”