Why we should hold banks responsible for their reckless lending to the wealthy.
A former millionaire property developer and his wife have lost a High Court claim for £3 million in damages from Barclays bank.
Michael and Carol Ann Gatt said that Barclays wrongly told credit rating agencies that they had exceeded their agreed overdraft limit, and that this ruined credit rating pushed them into bankruptcy.
The High Court ruled that Barclays’ claims were accurate. The couple’s overdraft limit was £1,500 and the bank had agreed to extend this to £260,000, but for four months only. When the couple didn’t settle this overdraft after four months, Barclays was right in signalling to credit rating agencies that the couple were well beyond their overdraft limit.
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The outcome of this court case is that Carol Ann Gatt, who says she has £30 in her bank account, needs to repay Barclays £847,287 in outstanding loans, and £80,000 in legal fees.
The judge said the couple had been living well beyond their means, and had been speculating with borrowed money. In his book, The High-Beta Rich, the journalist Robert Frank says that this is a growing trend among the wealthy: the fortunes of the richest are increasingly volatile, he argues, because they are tied to market speculation, and because the rich are easily seduced by cheap credit.
The lack of credit checks on the (superficially) wealthy is one of the more astonishing features of the book: Frank talks about individuals able to buy private jets without putting any money down, or being granted loans without having to give their occupation, address or even income.
The Gatt’s were foolish to take on Barclays in a legal battle — but as I pointed out in my interview with Frank, the banks should shoulder some of the blame for their reckless lending. Just as we don’t hold ordinary borrowers completely responsible for the sub-prime mortgage crisis, banks should be more honest about their lack of caution when it comes to lending to the very wealthy, too.
Read more by Sophie McBain
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