U.K. Bailout Fruit Is Left Unshared

SARA SCHAEFER MUñOZ

LONDON -- After receiving billions in taxpayer support, U.K. banks have promised to go easier on struggling borrowers. But they are putting the squeeze on some consumers.

Martin Baker, an engineer in southeast England, is one of those feeling the clench. Despite the recession and the demise of his wife's child-play-group business, they have kept current on their mortgage but struggled to make modest payments on £12,000, or about $18,000, in personal and credit-card debt, he said.

In February, though, Mr. Baker got a letter from Royal Bank of Scotland Group PLC demanding full payment on a £6,000 liability for a two-year-old overdraft related to his wife's business, he said. Mr. Baker offered to pay £20 a month, but was told that the bank would settle for nothing less than £700 a month.

Associated Press

Pedestrians pass a branch of The Royal Bank of Scotland in London on Tuesday.

If he didn't pay, the bank would seek a lien on his home and try to force a sale, he said.

"Just when you think things cannot possibly get worse ... this bombshell comes along," said Mr. Baker, adding that the situation has strained his marriage and left him fearing bankruptcy. "I've got nothing to fall back on."

An RBS spokeswoman said the bank couldn't immediately comment on Mr. Baker's specific situation, but it works with customers "to turn any situation around," noting that the company recently established a team of 500 additional employees to help struggling borrowers.

Prime Minister Gordon Brown's government has urged leniency with borrowers facing tough times, including giving more time to credit-card customers already in payment talks with a debt-assistance agency. Mr. Brown's administration also struck a deal with U.K. mortgage lenders to help some homeowners defer mortgage payments for as long as two years.

The U.K. Treasury said: "We are constantly talking to banks to try to get a full picture of how they are managing relationships with their customers and the pressures they are under."

"The banks are under pressure by government to deal with people who are falling into difficulties," said Tim Gray, a partner and dispute-resolution solicitor at Clough & Willis Solicitors in Bury, who works with lenders and consumers. "But there is an increasing pressure on financial institutions to recover as many funds as they can."

According to Sanford Bernstein, there was about £45 billion in outstanding credit-card debt and £75 billion in personal loans and overdrafts in the U.K. last year. U.K. lenders could have about £17.7 billion in losses in 2009 and 2010 on those debts, the research firm estimated.

The situation partly is a hangover from years when U.K. consumers willingly took advantage of easy credit. According to the most recent data from the Organization for Economic Cooperation and Development, consumer debt in the U.K. was 186% of annual disposable income in 2007, the highest level of any developed country with available figures. In the U.S., that number was 142%.

Individual bankruptcies in England and Wales were 19,100 in the fourth quarter, up 22% from a year earlier and a 9.4% rise from 2008's third quarter.

With many more loan delinquencies looming, creditors are ratcheting up the pressure when they can. Some lenders have hired outside collectors to bypass landlords behind on their mortgage payments by trying to collect rent directly from tenants. In some parts of the U.K., there has been an upswing in the use of charging orders, which press for payment on an unsecured loan by putting a lien on someone's house. The process also damages a person's credit.

Big U.K. banks that use charging orders include RBS, Lloyds Banking Group PLC and nationalized Northern Rock, all recipients of bailouts from the U.K. government.

"We are seeing a drop in people's disposable income, so they've no money to even offer the creditors," said Ian Boden-Smyth, social-policy coordinator for the U.K. Insolvency Helpline, which provides debt advice to borrowers.

Bank officials said they are committed to working with delinquent borrowers, using charging orders only in rare circumstances and as a last resort if they have been unable to work out a payment plan. A spokeswoman for the Credit Services Association, a trade group representing debt-collection agencies, said charging orders are a legitimate debt-recovery practice that can help borrowers defer immediate payment of debts.

Mr. Baker said he realizes his family is responsible for running up large debts. But it bothers him that the U.K. government's rescues of banks haven't helped him get any relief.

"Who's bailed out these banks when they've made bad decisions? Us," he said. "Who has bailed me out when I've made bad decisions? Nobody."