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SALLY MAGNUSSON: This is the story of how high street banks can lure their customers into debt; it's told by a powerful insider.
WHISTLEBLOWER: In all my years of experience in the banking industry I would say that consumers should be very, very wary of their banks. They put profits before the customer at every given opportunity.
MAGNUSSON: It's the story of how banks routinely encourage customers to borrow more than they can afford, sometimes with fatal consequences.
MARION MCDONALD: They told me he'd been found on the railway line in the morning. I can't even begin to describe how I felt. I had my children to deal with and I had to tell his family and it's like the world just stopped.
RBS BANK OFFICIAL: [on forecourt] As long as the cameras are not running¿ We'll have to get the police.
MAGNUSSON: The bank with the biggest slice of our credit card business doesn't want to talk about debt suicide. But this top executive from one of the biggest financial institutions in the UK is prepared to speak out.
WHISTLEBLOWER: I am a senior executive working in the banking and credit card industry and I have decided to blow the whistle on this industry.
MAGNUSSON: Late at night in January last year a body lies by a railway line. The only clue to the death is a bag nearby. Inside - dozens of credit card statements detailing a mountain of debt. Mark McDonald, who was 43, had thrown himself under a train leaving a widow and two children. Mark was one of at least 17 debt related suicides across Britain in the last 3 years. His story was first highlighted a month ago by our colleagues on Britain's streets of debt. Now Panorama has fresh revelations about the lending practices of the high street banks.
WHISTLEBLOWER: These tragic cases where people have taken their own lives are the cost that is paid for irresponsible lending practices, and this is exactly why they need to be curved. These suicides have been an inconvenience to the industry as a whole and they have exposed the practices that the banking industry have got away with for years and years and years.
Those are the words of someone who knows. She's a senior executive who works here in the very heart of the banking world in the City of London, and she's the first high-ranking whistleblower prepared - in fact she felt compelled - to break the bank's code of silence and reveal the industry's inner workings. Today she tells us how the high street banks precisely target customers for borrowing, and how they profit from those in financial difficulty.
WHISTLEBLOWER: I cannot overemphasise the focus on profits, and it simply gets to the point where when you see real life cases of people who are really suffering, or who lose a loved one, and you just¿ you just can't take it anymore.
MAGNUSSON: By speaking out our top banking executive has risked her livelihood and career because she's signed an agreement never to disclose publicly details of the bank's lending strategy. In order to protect her, we've agreed to disguise her, and her words are spoken by an actor.
WHISTLEBLOWER: My experience is with the big banks in this country, the high street banks that 80% of us bank with. I don't think any bank wants its internal procedures exposed. Maybe the reason for that is that some of them are quite questionable.
MAGNUSSON: The banking industry is a giant machine that pushes borrowing and makes enormous profits. Staff tend not to be paid particularly well.
WHISTLEBLOWER: Every branch of any bank and every individual who works in a bank has very ambitious sales targets to sell you more products, effectively to make you borrow money and to get you into further debt. They will have targets on every product that is available through the branch and they will have commissions or bonuses on every product. It's a very, very sophisticated, tailored, tested marketing strategy, and sales pitch to a public that have very little knowledge of what's going on. Effectively though, the most profitable customers are perhaps the most vulnerable.
MAGNUSSON: Customers like Mark McDonald who stepped in front of that train one night late last January.
It was midday the next day when they came and told that they'd found him. They told me he'd been found on the railway line in the morning. He'd left the back pack at the side of the railway track and it was full of bills, credit card bills, loans, all the evidence of the debt.
MAGNUSSON: To the industry, Mark was a revolver, someone who borrows heavily, makes minimum payments and never fully repays their debts.
WHISTLEBLOWER: The revolvers are the customers who borrow money month in month out. They're the people who are paying very high interest charges. They're the people who are likely to pay extra fees when they go over their credit limit. They're the people most likely to pay penalty charges, so you want to retain these customers at all costs.
MAGNUSSON: Mark had been a revolver for years. He lived in Downham Market in Norfolk where he worked as a writer of technical manuals. His wife Marion had given up work to have two children. The family relied on his income of roughly £26,000 a year, and they struggled.
MARION: He would occasionally say things like: "We can't afford that this month." And he would say: "I've got the gas bill and the phone bill to pay." And I'd say okay, well.. you know: "We'll wait, we'll do that next month."
MAGNUSSON: In the space of ten years Mark had acquired eight credit cards, two of which were issued by his own bank, the Royal Bank of Scotland, and he owed thousands of pounds on them. He survived by just paying the minimum charge each month.
WHISTLEBLOWER: People who have traditionally made the minimum payments, people who are heavy borrowers, people who's repayments are not even covering the interest, never mind the capital that is outstanding on the card, they are the ideal credit card customer. That is the perfect customer, the ones that makes you the most profit. And let's face it, it's an industry that focuses on profit.
MAGNUSSON: RBS knew exactly what Mark's income was. It knew he was making only minimum repayments on the money he owed, yet his credit limits on both cards were increased several times. One was upgraded to platinum which eventually had a credit limit of over £12,000. In the last 12 months of Mark's life, the bank made over £3,000 in interest and charges on the two cards.
MARION: He considered credit cards to have a status, always had, always had¿ you know, the fact that he could have a card with his name on it, and I think the idea of paying for something with a platinum card seemed to say to him that he.. you know, he was respected and the bank respected him. The platinum card says you've got prestige and a lot of money and it wasn't true. It was just like a sham really.
WHISTLEBLOWER: It is generally felt that in the industry by increasing the customer's credit limit, by upgrading their card to gold or platinum, you are increasing customer loyalty and hitting those marketing targets of retaining profitable customers.
MAGNUSSON: Marion only discovered how much Mark owed after his death.
MARION: He just said he'd got into debt with credit cards, and I knew he had the credit cards so I presumed that was it. It's only looking through finance now that I found out that he also had overdrafts and loans with the bank and loan companies.
MAGNUSSON: Despite his £26,000 income RBS lent Mark huge sums. It allowed him to build up a £6,000 overdraft. The bank lent him £15,000 to pay off his other lenders credit card debts. It let him re-mortgage his and Marion's home to the tune of £80,000 and it didn't end there. By the time he took his own life Mark owed his bank almost £120,000.
MARION: I can remember when I was quite a bit younger and I wanted to buy my first car, I had to sit in front of my bank manager and explain exactly how much the car was going to cost, how much I could afford, what my other outgoings were. But I think now because it's offered, I think people somehow think if they're offered that amount of money, therefore they can afford it.
MAGNUSSON: We showed the whistleblower Mark's financial records.
WHISTLEBLOWER: There were a number of warning signs from a relatively early stage that the bank should have picked up on. Here was a man on a very modest income. He was roughly earning £26,000 a year. He was lent his annual take home pay just on credit cards, on two credit cards. He was making minimum payments on the cards for years. He wrote credit card cheques from one of his RBS cards on a regular basis at exorbitant rates of interest and deposited them into his RBS bank account. The fact that he was overdrawn on his bank account, there are so many things the bank should have picked up on. There is no possible justification for the bank not to have understood that there were serious difficulties in this man's financial position. In my opinion the bank was grossly irresponsible.
MARION: The Royal Bank of Scotland knew exactly what his bank details were. They knew how much he earned, they knew what he was paying out every month, they knew the sort of balance in his account. I can't understand why they would just keep letting him have more and more money.
WHISTLEBLOWER: The banks are basically neglecting their duty of care. They are putting profits before human life almost. In circumstances like Mark McDonald's, where there has been clear irresponsible lending, in my opinion there should be laws introduced where banks can be prosecuted. This is how serious I believe this is.
MAGNUSSON: In a statement last month the Royal Bank of Scotland said:
"Throughout Mr McDonald's time with RBS we dealt with him in a responsive and professional manner. He had a regular dialogue with his personal banking manager, and the lending decisions on his account were consistently based on strict lending criteria. Mr McDonald managed his current account and maintained regular payments to both of his credit card accounts. He did not exceed his credit limit."
MAGNUSSON: The bank's record show that at no time did Mr McDonald make contact with the bank to inform us that he was in financial difficulty.
MAGNUSSON: That statement is seriously misleading. The bank says that Mark McDonald didn't tell them he was in financial difficulty, but the fact is, the bank knew. We've seen an internal RBS document which makes it clear that Mark's branch was aware of what it refers to, and I quote, as his: "financial difficulties." We've tried repeatedly to get an interview with RBS about their consumer lending decisions but they've turned down all our requests. So I'm heading off to the global headquarters of RBS just outside Edinburgh to see if I can have a word with the Chief Executive, Sir Fred Goodwin. With profits for 2005 of eight billion pounds, and a gleaming modern headquarters, RBS are certainly in no financial difficulty.
Hi there, sorry to bother you. I'm from BBC Panorama. We're hoping to have a word with the Chief Executive, Sir Fred Goodwin.
BANK OFFICIAL: [on forecourt] Is it on spec or are you expected?
MAGNUSSON: The high street banks are constantly adjusting their financial strategy and launching new lending products. It's a fiercely competitive market servicing a UK debt burden currently running at over a trillion pounds.
BANK OFFICIAL2: Excuse me. Is that camera turned off?
BANK OFFICAL3: [physically blocking camera] Otherwise we'll have to get the police in for you, sorry.
WHISTLEBLOWER: The marketing department is the engine of the business and it will have a whole series of targets. It will have targets to attract new customers which are extremely ambitious, and then you have very aggressive targets to maximise profits on existing customers. Monthly sales targets and meetings are what the marketing department lives for.
MAGNUSSON: Credit cards are banks biggest and most profitable consumer lending product, especially when we can be persuaded to increase our spending and to carry debt over from month to month.
WHISTLEBLOWER: What one needs to be aware of is the fact that a credit card company has the ability to communicate with its customers once a month. So therefore there is the ability to really target those customers to ensure you're getting maximum profitability.
MAGNUSSON: However sad it is that people get into debt and however much the banks may encourage it, surely it's people's own fault, they're responsible.
WHISTLEBLOWER: The individual always has a responsibility to make sure that they are not borrowing beyond their means and that they are able to repay whatever unsecured lending they take on.
MAGNUSSON: The banks have other techniques to get you to borrow more from them. Robert Jenkins is another revolver. He's married to Evelyn and they have five children in their teens. He's a school caretaker and he earns £18,000 a year.
We lived very much hand to mouth. We had to budget carefully. Major bills, unexpected bills were a problem for us.
MAGNUSSON: Robert's take home pay was £250 a week, while Evelyn earned £100 a week in a part-time catering job. For years they were getting by - just. But in the eyes of their bank, Robert and Evelyn needed some financial help. Robert was called in for a meeting. He remembers this as a financial health check, but Lloyds TSB disputes this.
ROBERT: We received a telephone call inviting us along to the bank for a health check which seemed a good idea.
WHISTLEBLOWER: When you are conducting a health check you will look at areas where that person doesn't have perhaps one of the bank's products. They don't have a credit card, they don't have a loan, and in most cases they probably don't need it. But if they don't have it, you're going to try and sell it to them.
MAGNUSSON: Robert and Evelyn left the bank happy. They had a restructured mortgage deal and within a few months Robert had a platinum card with a £6000 credit limit.
ROBERT: It was a good feeling to know that you'd.. you know, you'd got this sort of period of austerity behind you. Your finances are on track and they were so on track that you were credit worthy, not just for a few hundred pounds but for a few thousand pounds and that made me feel very good.
MAGNUSSON: This week the credit card celebrated its 40th birthday. Today there are over 1000 different cards available, and what you may not realise is that 70% of them are owned by the big five high street banks. At any one time a single credit card will have up to 100 different interest rates for purchases, introductory offers and cash. Armed with his new platinum card Robert started to spend, spend, spend.
If, for example, I went to the garage, whereas before I would have had perhaps ten or twenty pounds in my wallet to use for petrol, I would fill up with the credit card and I would think.. you know, that was a sensible thing to do, I'll pay it off at the end of the month, but of course I didn't. Before long you get to the stage where suddenly you haven't got any credit left on your card, and at that point, although ?? the bank would step in and invite you to increase your credit limit.
WHISTLEBLOWER: Unsolicited increases in your credit limit can take place up to twice a year. In some cases your credit limit could literally double in the space of two years. The customer doesn't really have a say in it. The higher your credit limit the more you're likely to spend.
MAGNUSSON: Robert started with £6000 of credit on his platinum card. Within two years the bank bumped up that figure to £11,000. Then Lloyds TSB gave Evelyn a platinum card. Her credit limit? £4,500! Robert was tempted by other offers that came through the letter box.
EVELYN: You know what it is.
ROBERT: Oh yeah, overall costs for comparison - 7.8% APR. It seemed to indicate to us that we were a much sought after commodity and that we were creditworthy which made you feel good, you know, you feel quite important when they take such an interest in you.
WHISTLEBLOWER: Some companies will send maybe twenty packs of direct mail to one individual so it's bombarding someone with an unsolicited application to borrow large sums of money without necessarily knowing whether they have the ability to repay the debt.
MAGNUSSON: By now the Jenkins had four new cards.
ROBERT: I was horrified to find that we'd got a total debt of about £29,000 with credit cards and I was absolutely gob smacked.
MAGNUSSON: It had taken less than three years for the Jenkins family to reach a debt crisis.
ROBERT: We'd been meeting the minimum payments but even they added up to somewhere in the region of about six or seven hundred pounds a month, just to keep the credit card companies off your back. It was almost half of my monthly income was being used to service the credit card debts. I woke up about 5 o'clock in the morning and it suddenly dawned on me that I'd put the house at risk, and the problems of bankruptcy would incur, and suddenly.. you know, I really started to suffer a panic attack. My stomach started to churn, I began to suffer a cold sweat, and I curled up in ball, you know, and I thought how do I get out of this.. you know, why has it happened, why have I let it happen? And I felt guilty and I felt all the emotions associated with sheer terror.
MAGNUSSON: This is Trowbridge, Wiltshire. In January 2005 a local mechanic killed himself with the exhaust fumes from his car. The reasons people take their own lives are complex. What's clear is that 65 year old Richard Cullen died with over £100,000 of credit card debt.
At the end of this garden is Richard's workshop and garage, and that's where he was found in the car in the morning¿ 10 o'clock in the morning. He'd come back overnight some time, and my son found his car down the bottom and we called the police and he was in the garage.
MAGNUSSON: Richard and Wendy were married for 18 years. They had 8 children from previous marriages. Richard earned roughly £15,000 a year and was another revolver, someone who borrowed heavily and never repaid the debt.
WENDY: It was really about two to three months before he died, the telephone was ringing almost sort of maybe 17, 18 times a day sometimes, asking to speak to him, and I used to say, and they would say it was the bank or the credit card, and I'd just give him the message or if he was in the garden I would go and give him the phone, and then he started to walk off with the phone, and I said.. eventually I said: "Why are they calling so often? You must be in trouble." And just before Christmas he admitted that he was terribly in debt. These are some of the statements I've discovered since Richard died. He owed roughly £135,000 on 22 credit cards. It's absolutely unbelievable. Shocking.
MAGNUSSON: Several lenders had issued more than one credit card to Richard Cullen. The market leader, the Royal Bank of Scotland Group lent him over £35,000. They have issued him with four cards under different brand names - Mint, Tesco Personal Finance and two NatWest cards, which together generated the RBS Group over £4,000 in interest and charges in the last 12 months of Richard's life. We took the statements to the whistleblower.
WHISTLEBLOWER: This is one of the worst cases of irresponsible lending that I have ever seen. Customers like Richard Cullen, they are the ideal customer. They hold multiple brands with one institution. In this case credit cards are pushed all the way to the limits. Throughout his whole payment history he's only making minimum repayments. He takes cash out. There are no interest free periods. This is your perfect customer. He spends on the card every single month. He's a regular user. He was earning a very modest income of £15,000. The bank knows that they lent him £35,000. If that's not an alarm bell then what is? There is an inconsistency in these statements in that there are credit limit increases at the same time as we're seeing a history of arrears and minimum repayments. It's completely inconsistent. This is just a very, very good example of why the banks cannot be trusted to self-regulate. Why do they do it? Because they know they can get away with it.
WENDY: I'm angry at Richard and I'm angry at the banks. Richard had a responsibility, he took out the credit cards and the loans. But surely the bank must take responsibility as well for allowing him to go on and on getting deeper and deeper into debt.
MAGNUSSON: Several months after Richard's death RBS agreed to write off his outstanding debt of £35,000.
WENDY: It's a very, very different life now. One day you're happy. The next day¿ there's nothing! You're just on your own.
MAGNUSSON: RBS told Panorama they were not aware that Mr Cullen had a serious debt problem and hadn't made any errors in handling him or his accounts. We took our evidence to the man responsible for policing the banking code of practice.
Hello, hi. Mr Fortescue, let me show you these: 5th November 2004 Richard Cullen is being chased for arrears on his Mint card which is operated by the Royal Bank of Scotland. Two weeks later, his credit limit has been increased on his Tesco Personal Finance Card to £7,700. Tesco Personal Finance Card also run by the Royal Bank of Scotland. The letters have been sent from the same address, the same PO box even. Isn't that a clear violation of the banking code?
Banking Code Standards Board
Well I find it extraordinary that this has happened. I think it's a case of the right hand not knowing what the left hand is doing, there is no excuse for that. But it was clearly very strange indeed for them to be increasing his card limit on the one side and the other side trying to ask for their money back.
MAGNUSSON: This is within one bank, this is inexcusable surely.
FORTESCUE: I agree, I think this is wrong. I will investigate to see whether there's been a breach of the banking code. We will need Mrs Cullen's authority to do that but I will gladly do that.
MAGNUSSON: In Norfolk Mark McDonald's widow remains angry with RBS. Despite the circumstances of his death, the bank chose to pursue his estate for the money he owed them.
MARION: After my husband's death, I received letters from them basically saying he owed them money and implying that I should pay it. They wanted their money.
WHISTLEBLOWER: Every major bank will have what they call a special recovery unit or debt collection Department, and the job of that Department is to recover repayments from those people who have fallen into arrears. At the end of the day, if they don't recover that debt, the bank will have to write it off. So they have extremely aggressive targets and this is why such aggressive tactics are employed to ensure the bank recovers it's money at almost any cost.
MAGNUSSON: Mark McDonald's insurance policies had enabled RBS to recover over £90,000, but it still wanted full payment of its remaining £27,000 when other creditors were prepared to settle for a percentage of the money he owed.
WHISTLEBLOWER: There have been many other similar cases where the banks, including the Royal Bank of Scotland, have chosen to write off the debt. In the case of Mark McDonald the Royal Bank of Scotland chose to pursue his estate. This is an obvious case of irresponsible lending, so I'm very surprised. I'm shocked.
MAGNUSSON: It was a slow process. A year after Mark's death the bank still wouldn't agree to a compromised settlement.
It's still a millstone round my neck basically. If I have to pay it I have to pay it, but I just want it to be gone, and it's not, and I'm constantly having to be brought back to the situation.
MAGNUSSON: Six months ago the Jenkins started to sort out their financial problems and to clear the £29,000 owing on their credit cards. They turned to National Debt Line, a charity that helps people in crisis. They now have a repayment plan. Any interest is frozen, but they still have to pay their creditors £180 a month out of their modest take home pay. Looking back, Robert accepts that he was financially naïve, but he also feels his bank was equally responsible for lending him more than he could afford.
I spent the money, that was my responsibility. But I seemed to be doing it with their agreement so that's how it went. There's something immoral about the way that the banks are doing their business these days. They're making it far too easy for people to get into debt and that's irresponsible. You should be able to trust your bank. You should be able to believe that you're a valued customer and not a means of deriving a higher profit margin.
MAGNUSSON: In a statement Lloyds TSB said:
"We've made considerable efforts to help the Jenkins address their financial problems. By consolidating their external debts and re-mortgaging with us we were able to reduce their outgoings by around £400 a month. We've suspended all interest on their credit cards and overdraft and agreed their request for a three month mortgage repayment holiday. We have tried to contact the couple to discuss how we might offer them further assistance, however, they have chosen not to take us up on our offer."
MAGNUSSON: The consequences of Britain's borrowing crisis are so serious that they're now hitting the banks themselves. They're facing a mountain of bad personal debt. So four of the high street banks, including Lloyds TSB and RBS, have launched an initiative to identify customers in trouble. They'll now share information on clients income as well as their credit history to inform their lending decisions.
WHISTLEBLOWER: It is certainly a step in the right direction, but I do remain very sceptical. I really believe the banks have had all along the information they need to make decisions about whether individuals were at risk of falling into dangerous debt levels, but this comes too late. Can the banks really change a lifetime of habits of irresponsible lending. At the end of the day, that's what's made them their profits.
MARION: So we're going shopping for some shoes. Anything else? Matt, you don't want me to buy you anything else? That's unusual.
DAUGHTER: I'll ask you when I get there.
MARION: Oh I thought you might.
You don't think you can carry on to start with but you have to, I have to think of my children and I have to think that they've got their whole life ahead of them. If I'm strong, they'll be strong. I think he blamed himself totally. I think he felt he'd let us down very badly. You know, he loved his family and he loved me and I think he couldn't find words to say: "I've let you down. I've got into all this debt I've not admitted to."
MAGNUSSON: After almost a year and a half of negotiations RBS settled for a fraction of the remaining £27,000 Mark owed on credit cards and an overdraft. Since then, and after we contacted the bank, the debt has been written off. RBS told us that this was in response to finding out that an earlier offer letter to Mrs McDonald's solicitor was never received. For Marion and her family, these long months of worry have been hard to bear.
MARION: It's destroyed our life, destroyed the marriage that we had, destroyed the family life we had. It's all gone.
RBS BANK OFFICIALS: [on forecourt] So Fred isn't actually here and there's nothing we can do about that. If you want to have an interview with somebody we'll try and do it, but what we would appreciate is if you held the cameras to the ground.
MAGNUSSON: So Fred Goodwin wasn't there today, neither was any of the other senior executives apparently. I had a very long conversation with somebody from Group Communications by phone who is in London, and tells me that she'll try and fix up an interview for me in London tomorrow. So we'll see what we can do. In the meantime we're being moved on again. Tomorrow came but no interview. RBS didn't make it happen.
WHISTLEBLOWER: Over indebtedness has become a cancer in British society. It affects every one of us. The banking industry is fully aware of the reasons why people are falling into severe financial difficulty and I felt that not enough was being done about it. And in many cases a blind eye was being turned to these issues. I would say that consumers should be very, very wary of their banks.
MAGNUSSON: If you've been affected by any of the issues in tonight's programme and would like to talk to someone in confidence, please call the BBC Action Line on 08000 680 661. The Action Line is open seven days a week from 7.30am until midnight. All calls are free.