Barclaycard is refusing half of all new applications amid increasing concerns over the levels of bad debt the company may be exposed to.
It has also chopped its current customers’ credit limit by a massive £330 million, and set aside a record £1 billion to cover itself against customers who can’t or won’t pay.
Barclaycard was the one cloud on Barclays’ horizon yesterday, as the division’s profits fell 20 per cent while the company overall boasted of record profits in 2005, leaping 15 per cent to £5.3 billion.
Barclays has denied that its aggressive lending strategies, heavily marketing its best rate and balance transfer cards, have been irresponsible.
Barclaycard chief Gary Hoffman said that rising numbers of bankruptcies following legal changes to liberalise insolvency laws had been the main cause of bad debt.
“The changes in the rules were geared towards helping small business, but the impact has been in the consumer sector where people are using them to get relief for their debts,” he told the Daily Mail.
Bankruptcy cases with little or no assets to seize mean that lenders have to write off the debt. Personal insolvencies rose 45 per cent last year.
An additional burden on Barclaycard is the 40 per cent of customers who are paying off their balances in full every month, meaning that the company cannot profit from their borrowing.
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