U.K. Litigation Cases On Defaulted Consumer Debts Soar Beyond 2008 Levels

Last month, S&P warned that UK lenders could incur £30 billion of losses on their consumer lending portfolios consisting of credit cards, personal and auto loans if interest rates and unemployment rose sharply.  Much like in the U.S., S&P warned that "loose monetary policy, cheap central bank term funding schemes and benign economic conditions" had fueled an "unsustainable" yet massive expansion of consumer credit that will inevitably end badly.  Per The Guardian:

The rapid rise in UK consumer debt to £200bn from car finance, personal loans and credit cards is unsustainable at current growth rates and should raise “red flags” for the major lenders, ratings agency Standard & Poor’s has warned.


In detailed analysis of the sector, S&P warned that losses from this form of lending suffered by banks and other financial institutions could be “sharp and very sudden” in an economic downturn and may be exacerbated if the Bank of England increased interest rates.


It also warned that it could downgrade banks’ credit ratings if the high growth rate persisted or banks took on too much risk in this sector. But it did not fear any system-wide impact from consumer credit.


“Loose monetary policy, cheap central bank term funding schemes and benign economic conditions have supported consumer credit supply and demand,” S&P said.


Annual growth rates in UK consumer credit of 10% a year have outpaced household income growth, which is closer to 2%, and become a focus for the Bank which is scrutinising lenders’ approach to the sector.


“We believe the double-digit annual growth rate in UK consumer credit would be unsustainable if it continued at the same pace,” S&P said.

Credit Cards

Now, new data surrounding the growing number of court filings related to the recovery of consumer debts highlights just how serious the personal leverage problem has become in the UK.  As the FT points out this morning, there have been over 900,000 court judgements on consumer debts in just the first 9 months of 2017, up 34% compared to the same period in 2016, compared to only 827,000 at  the height of the great recession in 2008.

Consumers who refuse to repay their debts are increasingly being taken to court, with litigation at levels last seen in the run-up to the 2007-08 financial crisis.


New figures show there were 910,345 county court judgments in the nine months to the end of September. This is an increase of 34 per cent per on the same period in 2016, and compares with 827,000 in the whole of 2008, at the onset of the financial crisis.


The rise in court judgments is another indication of the high levels of unsecured debt weighing on British consumers, with Bank of England data showing that borrowing through credit cards, overdrafts and car loans has topped £200bn for the first time since the global crisis.


Although UK unemployment is at all-time lows, growth in real incomes and the savings rate have both deteriorated in recent months, suggesting household finances are worsening. Many economists are predicting a slowdown in what has been robust consumer spending.

This should come as little surprise to our readers as we pointed out earlier this summer that the U.K. auto market had seemingly taken a page from U.S. subprime lenders by offering a brand new car, with no money down, to anyone who walks into a dealership with a pulse (see: Undercover Investigation Exposes Deteriorating Auto Lending Standards In Europe; No Job, No Problem) . As the Daily Mail pointed out, 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

Of course, excessively levered household balance sheets work wonders for gaming GDP growth...that is, right up until the point that interest rates start to rise and those households realize their ability to "afford" their spending binge was nothing more than a temporary blip courtesy of accomodative interest rate policies...the reversal of which will now render many of them bankrupt.


Thoresen Tue, 11/14/2017 - 03:40 Permalink

In the UK bailiffs are not allowed to seize cars on finance as part of debt recovery, because the car is not owned by the debtor but by the finance company. So people buy cars on these pay later finance schemes and default on other debts knowing that the car cannot be seized.
(Much advice comes from watching TV channels featuring series on debt recovery as entertainment).

wonger Tue, 11/14/2017 - 03:41 Permalink

The number of new cars on the road in the UK shocked me about 18 months ago, once i was driving and i noticed every single car around me was new, so many expensive top of the range brands, people would laugh at me when i said house prices are falling and the economy isnt doing well and economic troubles are ahead, it really did feel like i was the only person not driving a new car and buying property to rent, it seemed everyone was becoming very wealthy while i predicted doom lol

Omen IV wonger Tue, 11/14/2017 - 09:10 Permalink

with blacks & browns driving Mercedes & BMW's why would anyone pay a premium for the Brand Label to have a vehicle to drive?there is no prestige / value vs the same features and functions on other brands that are substantially cheaper when the animals are coming in the neighborhood time to sell whether a house or other asset

In reply to by wonger

desirdavenir Tue, 11/14/2017 - 04:04 Permalink

not bashing the UK today. Consumer credit growth is worrying, but there is also growth in repayments (at least until recently). So all in all, that's not too worrying yet.

theprofromdover Tue, 11/14/2017 - 04:23 Permalink

I think also that companies are selling off their bad debt books to debt collectors much quicker now.Debt collection is a hugely-expanding business in UK. Of course half of these companies own their debt collection agents behind the scenes, all to keep a smiling, caring face on it.

Sandmann Tue, 11/14/2017 - 05:28 Permalink

Since many of these are Default Judgments with noone attending it is a bit of a farce. Western society has turned this into a slot-machine process rather than a proper evaluation. These Claims are issued from a single centre in Northamptonhttp://www.moneyclaim.gov.uk/web/mcol/welcomeSometimes they have the wrong/old address. Other times they may have wrong details or fail to provide paperwork required. This whole system is a roulette wheel.Councils don't even need to use Courts to issue Judgments and Bailiffs for Property Tax arears.The whole Debt Issuance and Debt Collection system is reflective of the complete bankruptcy of Wetern Society

JohnGaltUk Sandmann Tue, 11/14/2017 - 07:09 Permalink

Hey Sandman the criminal courts are no better. Standard position is that they plea deal straight away, half the fine if you plead guilty. People need to wake up, THE STATE IS BROKE AND THEY NEED YOUR MONEY. Historically when the state gets themselves into this type of financial shit, they will ALWAYS turn on their own citizens until they revolt. Take a look at the USA with civil foreforture, it is legalised theft. Guys wake up, we are in the process of collapse, when the state has to print money you know the end is not far away, the Romans tried it, Germany tried it, Venezuala tried it and many other countries, and did it ever work once!!!! NO.

In reply to by Sandmann

Wile-E-Coyote Tue, 11/14/2017 - 05:31 Permalink

People over here in the UK are living like the economy is booming, when it plainly isn't. People are driving Mercs and BMW's that at any other time they wouldn't be able to afford, really cheap leasing deals are sucking many in. Wages in the UK haven't risen in the last 10 yrs for ordinary folk, with incessant inflation now at 3.1% the spending power of the many is dwindling by the month. The problem is perceived status, it drives people to take on credit that they can't afford, with nearly full employment with many jobs paying low wages, a new poverty trap is emerging.There again, fuck em they should know better. 

fulliautomatix Tue, 11/14/2017 - 06:08 Permalink

".. all time low in unemployment" According to whom and by what measure? Low unemployment is more sign of book-cooking by government and politicians than a legitimate measure of the utilisation and wealth generation of labour. In other words, what does "low" unemployment have to do with the financial state of the populace?

wisebastard wisebastard Tue, 11/14/2017 - 07:15 Permalink

in reality a system that is broken as the current one's faults cant be blamed on one trader who profits from the mistakes of the masses. i think George is hated for erroneous reason. similar to 2008, sure banks like Goldman Sachs and JP Morgan profited but it would not have happened with out the publics complains. Goldman Sachs did not build the mortgage crisis, it was  a team effort

In reply to by wisebastard