Bank Of England Warns Of "Spiral Of Complacency" Over Soaring Consumer Debt

Tyler Durden's picture

A few weeks ago, we wrote a note about how European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States.  Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future...that sound familiar to anyone?  (See: It's Not Just Americans, Europe's New Obsession With Auto Leases Is "Catastrophic For Used Car Prices")

Then came an undercover investigation by the Daily Mail exposing just how "undisciplined" the auto lending market has become in England.  Their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income. 

Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.


In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.


These deals offer smaller monthly payments than traditional car loans.


A reporter who said he was working part-time on the minimum wage was offered a £15,000 Seat Ibiza without a deposit at a Seat dealership in Manchester.  Another reporter suggested that he had bad credit, but he was offered an £8,600 Vauxhall Corsa in Birmingham.


Kevin Barker, 71, found himself £3,500 in debt when he suffered a heart attack six months into a PCP deal. He said a ‘pushy’ Toyota salesman ‘pressured’ him into taking out a 36-month agreement in November 2014 and he was not told of the repercussions if he fell ill or lost his job.

Car Loans


And while offering $20,000 auto loans to unemployed teenagers may not seem like that big a deal to U.S. consumers, in Britain it apparently has a lot of bankers worried.  As Alex Brazier of the Bank of England put it in a recent Liverpool speech, lenders are "dicing with a spiral of complacency."  Per The Guardian:

“Ten years ago, an unsafe financial system caused financial crisis and economic disaster”, he said. “The western banking system had expanded rapidly. Banks – and their regulators – had been blind to the basic fact that more debt meant greater risk of loss.


“Complacency gave way to crisis. Companies and households were unable to refinance their debts. The result was economic disaster. In this country alone, close to a million jobs were lost and more than 100,000 businesses failed. Too much debt made the financial system, and the economy, unsafe. Too many people paid the price when those risks materialised.”


“Lenders have not entered, but they may be dicing with the spiral of complacency,” Brazier said, noting that as credit became cheaper it was taken up more widely and was serviced more easily.


“The spiral continues, and borrowers rack up more and more debt. Lending standards can go from responsible to reckless very quickly. The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy – face are actually growing,” Brazier said.


“By September we will have assessed whether the rapid growth has created any gap in the line. If it has, we’ll plug it,” Brazier said.

Of course, when lending standards enter their "spiral of complacency" phase, it's not just a single asset class that's impacted.  As The Guardian notes, loan terms for everything from credit cards to personal loans to mortgages have all participated in the consumer credit mania...

He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.


He added that developments in mortgage debt had been much less striking than those in consumer debt and car finance, with lending for home loans up by just 3% over the past year. “But even here there are some tentative signs of boundaries being pushed,” he said.


Strong competition for business was resulting in more lending at higher loan-to-income (LTI) multiples, with the share at an LTI above 4 increasing from 19% to 26% over the past two years.

...all of which has resulted in a stern warning from the BoE that failure to unilaterally reign in reckless lending standards would inevitably result in a new regulations.

The Bank of England has told banks, credit card companies and car loan providers that they risk fresh action against reckless lending as it warned of a looming “spiral of complacency” about mounting consumer debt.


In its toughest warning yet about the possibility of a rerun of the financial crisis that devastated the economy 10 years ago, Threadneedle Street admitted it was alarmed about the increase in the amount of money being borrowed on easy terms over the past year.


“Household debt – like most things that are good in moderation – can be dangerous in excess”, Alex Brazier, the Bank director for financial stability, said in a speech in Liverpool. “Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.”


"Lenders have been the lucky beneficiaries of the benign way the economy has evolved. In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions,” Brazier said.

Of course, if new regulations fail to materialize then British banks can always do what American banks do...simply package up their toxic consumers loans into a nice securitized product and sell it to taxpayer backed pension's a much cleaner way to socialize poor lending standards as opposed to waiting around for more overt 'bailouts' later on down the road...

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Manthong's picture


Mercy me…

Just who do those arrogant limeys’s think caused the debt overreach?

Got mirror, MF’s?


Thoresen's picture

Watching those TV bailiff repossession programmes in the UK it seems that you won't get your car taken if it is subject to a finance scheme. Yet another reason for the way things are going for those likely to get into debt they can't repay.
Personally, I just got a 25% discount on a new car by using a broker. The car was cheaper than a one year old used car.

Haus-Targaryen's picture

So what you're saying is I shouldn't buy a new car right now, and wait until the finance institutions holding collateralized auto loan debt get slaughtered and pickup something almost new for next to nothing? 

Would love to get a 2016 Passat GTE Estate/Kombi/Stationwagon for the wify, but paying $40k for it isn't appealing.  

PT's picture

But if the banksters don't lend money to idiots then the idiots can not bid up prices until everything is unaffordable.
If the idiots can't bid up prices then the banksters can't enslave the world and steal everything in it.

As I commented below, I don't think the banksters will allow car prices to go down.  They will crush the cars to create scarcity rather than let their prices go down to affordable levels.  (or organize a war or a "terrorist attack" in a heap of car yards).

The game is theft and enslavement through lending imaginary "money", not "helping" a car factory to sell cars.  Big difference.

Cashboy's picture

PT:  Your comment "They will crush the cars to create scarcity rather than let their prices go down to affordable levels" was started sometime ago by BMW to keep the value of newish cars up and to maintain the parts prices.


nixy's picture

I've given up 'being british' .... too fvcking expensive. 

bloostar's picture

Over here in UK there are tons of people cutting about in the latest high end luxury cars, some of whom are clearly ill able to afford clothes that don't resemble shell suits. There's a big pop coming soon! All those luxury brands are actually doing themselves a disservice by reducing their brand image to the point of 'anyone can buy one'. Who'd want a BMW when the wasted gadgie down the street is cutting about in one every day? Heck, you can get a Bentley for 'just' £900 pm with an £80k balloon payment!

sinbad2's picture

Well I'm looking forward to it, I really would like a newish Audi Quattro, or a BMW, but can't afford one.

I remember the Asian meltdown, almost new bemers going for almost nothing.

So I wait for the day, when cash talks a lot louder than finance.

Haus-Targaryen's picture

Me too.  I sit on the sidelines and keep powder cold waiting to step into a vacuum and converting PMs and literal 100's into assets.  

Most will go into multi-family dwellings but will definitely replace one of our two cars.  

css1971's picture

It's simple. Buy low, sell high.


Today, everything is high, which means money is what's low. So, should be in cash not assets.


Can't tell people though. Buy low, sell high is really way too complicated for them.

PT's picture

sinbad2:  I don't believe you.  This time round these fuckers will do anything to pretend they were not wrong.  All repossessed cars will either be crushed or sent to a foreign market in order to keep the remaining cars unaffordable.  These fuckers have too much at stake to allow the price of cars to collapse.  Find the right back-channels and you should be able to sneak out a cheap car but forget about finding one easily.  99% of the population will still have to either take on unaffordable debt or do without.  At this stage of the game it is all rigged.  None of it is real.  They WILL crush cars rather than let the price of cars go down.

Yes, I could be wrong.  I am no expert (except, perhaps, an expert pessimist - but hey, all that experience doesn't count for nothing!)  We'll find out in time, I guess.

giggler321's picture

stick it on the house, after all they only ever rise, everyone knows that, equity release here we come...

sinbad2's picture

There is only one everlasting asset, land.

If you looked into the data, I'm sure you would find the banks hold title to most land/houses, when a mortgagee sells, a bank usually picks up a mortgagee from the buyer. The number of people who actually own their own land and house is decreasing. We are moving back to a feudal system, where the banks are the lords, and mortgagees are the vassals. 

2banana's picture

But land can't be moved.

And can be taxed and taxed and taxed some more.

And then be confiscated for the greater good.

UndroppedClanger's picture

It's the same out here in the sticks - I know personally how tight things are for farmers in the UK at the moment and yet in my local area I'm seeing new barns and sheds popping up, shiny new tractors, new 4x4s all over the shop. I'd bet my year's disposable income that at least 9 out of 10 of them are on tick (it's a trick, in case anyone's thinking 'I'll take that bet': my disposable income is approximately zero and I'm not saying that to be all 'woe is me', it just illustrates the point that UK farmers are not currently a good target for loan selling if the vendor ever wants the money back). Seems there's always someone trying to flog us a loan of some sort, usually secured on the farm. It's almost like there's some strong impetus out there to deliberately create bad debt. That, or maybe it serves some purpose to push small farmers into bankruptcy so they have to sell up.

Cashboy's picture

I realised the status of a Mercedes was gone in the late nineties when I saw Mercedes open a used dealership in Hemel Hempstead, a 60s new town full of chavs.

There will be some real bargains in the coming months when the lease agreements end and the market is flooded with used cars.  The bigger dieseled cars will be taken by the muslims to do Uber services while still on every government benefit available.

My parents came to the UK as immigrants in the early 60's and left the UK in early 2000 because they were sick of the amount of foreigners in the UK.  Can you imagine if they saw what it was like now in this dirty over populated place full of PC propoganda.

The UK has become a sh1t hole and it is time for me to leave and move to Thailand.





Truthoutthere's picture

You could do worse than a move to Thailand.Thai women are great.

Jack Oliver's picture

Blame the consumer again - When the economy collapses it will all be our FUCKING fault !!!

PT's picture

Idiot:  I must be able to afford it.  Otherwie the bank would not lend me the money!
Bankster:  The Idiot must be able to afford it.  Otherwise he wouldn't try to borrow that much.

The difference being that one is an amateur at money matters and the other is an expert.
One borrows occasionally, the other borrows and lends ALL THE TIME.

And a little correction on the dialogue above:

Bankster:  Who cares whether or not the Idiot can afford it?  I get bonuses for lending, not thinking, plus I just sold the debt to his pension fund!  Winning twice!

Cashboy's picture

UK citizens (probably most westerners) are in for a shock with the future value of their pensions.

1)  Private and company pensions will be worth little if anyththing

2)  The UK state pension will be means tesetd so any state pensions will more than likely be redeuced by any private pensions you were dumb enough to contribute into.

3)  Pensions paid to you from the state will probably be clawed back from your estate at death like care home costs are.


2banana's picture

Live below your means

Save and pay cash for things you need 

Save at least 10% of what you make


These are now just white racist old school ideas that need to be diversified....

Batman11's picture

House prices can only ever run ahead of wages when:

1) Interest rates are falling

2) Banks are relaxing lending criteria 

Speculators enter the market for capital gains and the boom lets rip.

Interest rates rise, or banks tighten lending criteria, and the ponzi scheme collapses.

When was it ever any different?

The 1990s - UK, Japan, Australia, Canada and Scandinavia real estate busts. 

2008 is just another real estate bust, leveraged up and transmitted internationally by complex financial instruments.

Irish, Greek and Spanish real estate crashes. 

Australia, Canada and Scandinavia are queuing up for their second real estate bust.

It’s silly really, but no one realises the problem, including today’s independent Central Bankers. They are never going to create financial stability until they get a grip on the real estate boom and bust.

Batman11's picture

You can actually see unproductive lending going into the economy:

The FED weren’t looking in the right place.

Steve Keen saw 2008 coming in 2005.

The UK:

No one has looked in the right place, apart from Steve Keen and everyone ignores him because they like surprises.

css1971's picture

Keen's one of the good ones, but none of this is new. In fact, it goes back several thousand years.

You should read some Mises. (1911)

css1971's picture

"They are never going to create financial stability until they get a grip on "


lol. Oh how sweet.

nixy's picture

What a stroke of good luck we have regulators to make sure things don't get out of hand.

headfake's picture

The Banksters are absolutely killing it.

Wile-E-Coyote's picture

Here in the UK you see it everywhere new premium cars driven by people who normally couldn't afford them. Maxed out CC and big mortgages they be like lambs to the slaughter. I have no sympathy they won't be told, they cant be reasoned with, they want everything today. But it's never their fault when it goes horribly wrong, they are nothing more than immature spoilt children. Fuck em.

css1971's picture

BOE: "We've pumped up debt as far as we think it'll go, and now we're going to deflate it!"


They're just following the BIS instructions:


Banks have already been warned BTW. So if you have debt. Get rid of it now.

HonoraryCarioca's picture

Precisely . The only reason they are issuing  these  warnings now is so that  they can tell everyone after the collapse "I told you so!". Never mind the  fact that this was their creation in the  first  place .   

Batman11's picture

In 2008 the UK turned Japanese.

Japan hasn’t really recovered since 1989, it’s bad.

High house prices were supported by neo-liberals because they were economically illiterate.

The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

The minimum wage must cover the cost of living.

The investors view:

I think I will invest in Asia to maximise profits, it's not hard.  The cost of living is ridiculous in the West and I have to pay that in wages.

Disposable income = wages – (taxes + the cost of living)

Get the cost of living down to compete in a global economy and create prosperity.

Generation rent view:

My future prosperity has been curtailed by housing and education costs. I don’t think I will ever have enough money to start a family and demographic problems are going to get a whole lot worse.

Look at the legacy of debt from all those large mortgages:

From an economic view point, inflating the cost of your housing stock is insane.

We have hit the debt iceberg already and just can't get off.

Batman11's picture

Much like the US:

They got off the debt iceberg in 1929 and the only way out was through the Great Depression.

Today's deleveraging hasn't even touched the sides, it's still worse than it was in 1929.

silverer's picture

The Japanese model of disaster presents an incredible opportunity to devise a new financial system, one that is not debt but credit based, and designed to accommodate a shrinking population. But Japan is tied to the US, and it will never happen, because the US only wants everyone to play along and keep the Ponzi alive as long as possible to they can print paper and exchange it for real assets. If enough ordinary working stiffs in the western world understood where things really were, and understood what the banks have been doing and will continue to do, they would get their money out yesterday and leave only enough in there to pay two months worth of bills at a time. There can't be bail-ins if your money is gold and in a private vault in Texas or Singapore.

Goldenballs's picture

So Carney quotes the obvious for who  ....................... for whoever is dumb enough to believe in a collapsed system that has been on life support since 3008 and in reality since 1970.

The people who believe are corrupt and dishonest Politicians (who continually spend other peoples futures ),Regulators ( who give Ostriches a bad name and have continually failed to do their job properly / on purpose ), Bankers ( who sell electronic fresh air currency that has destroyed countries,societies,morals and ethics ) and everyone else in society who believes the fake media and Government fabrications called statistics.

The Country gets the bills and the Tax Havens get the profits.

Too Big to fail,to connected to Jail.


Please complete the Idiocy test below,


Our deficit will be fixed ( forget the National Debt ) in  -   2018    2025   2051   5036    Never     (please tick as appropriate)



The Government are -      Nice People    Liars (who Blagg their way through everyday )  Magicians  Unconvicted Criminals  Above the laws and rules they

create.       ( Think carefully and tick as appropriatel  )




We flogged our Gold off because        We are broke   We Know what we are doing  We do not know what we are doing   Goldman Sachs needed bailing out    The Chinese , Indians and Russians have not got enough    Fiat money is worth more per Oz     All of these                                         ( Please tick as appropriate  )

Grandad Grumps's picture

If the world is going to burn anyway, what is the problem with a couple more logs on the fire?

silverer's picture

The warning is well advised. But about 8 years too late.

DrNybble's picture

Problem is "Some don't worry about debt repayment because:
-- I can always declare bankruptcy
-- Payback terms will be renegotiated
-- Loans will be forgiven
-- The government will come to the rescue

much obliged's picture

Let's not forget that Jimmy Carter's and Bill Clinton's "Community Reinvestment Act" demanded under pain of penelty that banks lend to sub-prime borrowers. Before the fact of the 2008 financial meltdown, the sub-prime loans were guaranteed by the triple "A" rated United States government. The banks rated the toxic debt as a "nice securitized product" for that reason.