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HSBC warns on ‘bankruptcy culture’, current account charges possible

UK banking behemoth HSBC has criticized the country's growing insolvency industry for marketing bankruptcy as an easier option to escape debt.

The group’s chief executive Michael Geoghegan told the Financial Times newspaper that there appear to be non-regulated advisers who are advising people, and charging for this advice, to suggest that people should file for bankruptcy.

The newspaper article went on to add that the bank was more concerned about the marketing employed by debt advice companies than by the regulated practitioners who actually declare the bankruptcy formally. Mr Geoghegan said that since the government had relaxed the rules surrounding bankruptcy by introducing individual voluntary agreements (IVAs), which allow for a certain level of debt to be paid over five years, IVAs are now heavily marketed by debt advisory firms, which HSBC says may be removing some of the stigma of insolvency.

We are concerned that independent advisers, who are not regulated, are telling kids to just not bother paying their debts. They are saying, ‘Give us a couple of grand and we’ll make it go away’, Mr Geoghegan was quoted as saying in The Independent.

HSBC has moved to tighten its lending criteria as bad loans write-downs continue to mount. However, the bank posted record H1 pretax profits of GBP6.7 billion on July 31.

Despite this, there is media speculation in the UK that HSBC is contemplating axing free current accounts. The London Evening Standard newspaper reports that the bank believes it has no choice but to impose the charges – removed two decades ago by HSBC’s antecedent Midland Bank – in the face of pressure to reduce credit card late payment fees. The Office of Fair Trading wants banks to impose a maximum GBP12 charge for late card payments, a reduction on the current GBP20 or more typically charged by HSBC and its rivals.

However, any move to charge for current accounts would bring instant opprobrium from consumer groups, not to mention the 16 million customers affected, on the grounds that the whole retail population would in effect be penalized due to the late-paying minority.