Wednesday, Sept. 24, 2003 | 11:05 a.m.
A panel of three international insolvency leaders discussed a growing global trend of rampant consumer spending, with the United States leading the way and the United Kingdom and India trailing behind, at the annual conference of INSOL International on Monday.
INSOL International is a group of lawyers and accountants who specialize in insolvency and corporate turnaround.
The panel was moderated by Nick Hood of Begbies Traynor in the U.K. The panel was made up of Louise Verrill of Addleshaw Goddard in the U.K., Charles Rusbasan of Bear Stearns in the United States and Hemant Batra of Kesar Dass B. and Associates in India.
The panel discussion called "The Global Expansion of Consumer Credit: Seeds of Disaster or Seeds for Growth," compared the three economies and suggested ways to curb consumer spending.
While the trend of consumer spending without regard for ability to pay is alarming, Hood said in his opening statements, there are also positives to the trend.
"What we're trying to do is to assess what should we do about it. Should we stand by or should we be afraid?" asked Hood. "It's the consumer spending in the U.K. that has held the economy up," he added.
Hood stressed the need to address the overspending of consumers, saying their spending habits affect the world economy.
"At the end of most business transactions are consumers," Hood said.
Consumer debt in the United States expanded 4.1 percent or $6 billion in July, according to Federal Reserve statistics. The Fed said that credit card, auto loan and other non-mortgage personal debt totaled $1.77 trillion in July.
According to the U.S. Bankruptcy Court for Nevada, there were 10,877 bankruptcies filed in Nevada in 2002 through Sept. 23, 2002, with about 95 percent of those being personal filings. Bankruptcies are up this year in Nevada, totaling 11,692 so far.
The United Kingdom and India, countries that are less accustomed to flagrant consumer spending, are following behind the United States, panelists said.
Verrill said in the U.K. the debt to income ratio for consumers rose from 89.9 percent in 1990 to 106.2 percent last year, while consumer credit has soared 50 percent since 1998.
After the discussion Verrill backed up Hood's assertion that businesses will ultimately be affected by consumer debt.
"You can get into a vicious cycle. Somewhere there has to be an arrest. The retailers and manufacturers are going to take the hit ultimately. As practitioners we should be there to influence government," she said.
India is following behind with its own growth in consumer debt, according to Batra.
"The market underwent tremendous change over the last two decades. The banking industry opened up in a very gradual manner. Many banks which were going into business finance have switched to consumer finance," Batra said.
He said the development of a middle class has caused the rise in consumer spending.
"The Indian middle class are the movers and shakers of the economy. In 1947 when (India) became independent (from Britain) there was virtually no middle class," Batra said.
Locally, bankruptcy lawyers attribute an increase in bankruptcies to economic conditions.
"I'm getting people you wouldn't think are in bankruptcy," said Philip Goldstein, a local bankruptcy attorney.
"Now I've got the school teacher ... I've got the public employees," he said. "I'm finding a trend for the creditors to be more aggressive. It is not uncommon for a creditor to be short-sighted. Instead of trying to work out a repayment plan, they move directly to foreclosure."
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