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Bank Customers Have Responsibilities Too, Say Experts

7 February 2013

Irresponsible borrowing by bank customers played a role in creating the current financial crisis, according to new research.

The findings come as the UK Chancellor of the Exchequer seeks to separate Banks’ retail and investment wings.

Authors Professor Mark Durkin of the University of Ulster (pictured) and Professor Steve Worthington of Australia's Monash University say that while popular opinion almost exclusively blames banks for the current financial crisis, there is also evidence of irresponsible borrowing by customers which has also contributed to the crisis.

The researchers examined anonymised case study data, gathered by the Consumer Credit Counselling Service (CCCS) into causes of over-indebtedness in the United Kingdom.

Within the cases the reasons for this adverse debt position included;

- excessive spending by the consumer

- using credit for general living expenses and debt repayment

- interest and charges on the credit taken and the raising of the credit limits by the lender.

According to Worthington and Durkin, themselves both former retail bank executives, the information within the case studies reviewed demonstrated clear examples of irresponsible borrowing - as well as irresponsible lending.

Professor Durkin said: “The cases demonstrate that both the provider (the Bank) and the consumer can contribute to destroying value in the banking relationship. It seems important that both sides of the relationship are considered as we strive to find ways of improving customer-bank relationships in general.”

Professor Worthington added, “To understand why consumers borrow beyond their means to repay, we need to delve further into aspects of behavioural economics and psychology.

"Similarly, irresponsible lending requires a better understanding of organisational behaviour and the culture of contemporary banking, where performance both of individuals and corporates is constantly measured. Regulation in the credit market aims increasingly to protect consumers and to monitor lenders’ behaviour.

"Notwithstanding the importance of this protection for consumers the regulator’s intervention does not make for a zero-failure regime and consumers are not removed from the responsibility for their own decisions – there is also an important requirement for self-regulation by consumers.” ENDS

[1] Worthington, S. and Durkin, M. (2012), “Co-destruction of value in context: cases from retail banking”,The Marketing Review, 12(3), 291-307