#BTEditorial – Debt traps as the credit bureau hovers

How are Barbadians doing in managing their debt? That doesn’t sound too good, according to that country’s insolvency supervisor, Ms. Esther Springer. But should citizens be surprised at his revelation that we are drowning in debt?

Some may suggest that the same scenario exists at the national level where the country is carrying substantial debt which worries many financial experts. They deplore our ability to manage such debt and under what conditions this debt financing will be granted.

Under normal circumstances, when job opportunities were available and job security is stable, people tend to take the risk of approaching financial institutions to borrow more money.

The past two years, and even the period before, have been rather unusual times for Barbadians. The economy was in bad shape, unemployment remains high, and the COVID-19 pandemic was so devastating that it removed the word “stability” from our vocabulary.

So when Mrs Springer told the House of Assembly during the 2022-2023 Revenue and Expenditure Estimates Arguing that too many Barbadians were struggling to manage their debt and meet their obligations didn’t create the kind of shock some expected.

Who are we responsible for this situation? Are they individuals who lack discipline? Are commercial banks, credit unions, and other quick lenders that have sprung up in recent years to lure people in with pre-approved credit? Is it the government that has failed to properly regulate the financial industry and protect ordinary citizens from the exploitative and predatory practices of some finance houses?

We argue it’s a combination of everything. However, ultimately it is up to the government to ensure that a Wild West situation does not develop.

The fact is that if the financial sector is faced with a high level of delinquency and citizens who are under water because their assets are valued far below their debts, then the financial sector and the government have a problem between their hands.

“We see people as young as 23 and up to 72 suffering from serious debt problems. We see people with eight credit cards using one credit card to pay for the other. We see businesses starting up, but due to a lack of knowledge of what is out there, they find themselves in financial difficulty,” the senior government official told the House of Assembly last week.

This is a frightening situation in which a young person or a retiree should find themselves. Although the young person has free time to pay off their debt, it may mean that they may find it difficult to achieve other goals, such as pursuing higher education or owning a house, because their main objective is to get rid of credit card debt. .

A retiree with unmanageable debt is a separate problem due to his lack of ability to earn money.

And of all loan products the hardest to manage are recurring credit card and line of credit debt. They have a way of being an albatross hanging around the necks of those under their sway.

With interest rates hovering around 25% or more, these products can become a financial quagmire that requires outside help to get out of.

Moreover, with the introduction of the new Fair Credit Reporting Act earlier this year, people with less than stellar credit histories could find themselves barred from loans or possibly facing higher interest or onerous demands from lenders.

And for those who may not be aware, your information will be collected from financial institutions that offer credit, such as commercial banks, finance and trust companies, credit unions, as well as insurance companies. insurance by the new credit bureau.

It may also collect information from utility companies such as the Barbados Water Authority, Cable & Wireless and Barbados Light & Power. In addition, companies that offer hire purchase and other entities such as the student revolving loan program must provide credit history information for their customers.

Among the essential pieces of information that the new credit bureau can collect are personal information such as name, date of birth and address; the type of loan or credit and the institution from which you accessed it; all outstanding loans and terms; information on the assets used to guarantee the loans; and the status of outstanding loans, including the last payment you made.

In this new era, it will be essential that young people learn how to manage their debts before they become one of the victims the Insolvency Supervisor worries about.

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John A. Bogar