Alan Steel: Personal story tells volumes about our financial industry

This is not about investing or financial markets. Instead it is about a friend of mine, an elderly gentleman who has been abused by our financial services industry.

His mistreatment has left him mired in debt and tormented by fear, panic, shame and depression.

His story is important not only because it is close to my heart, but because it raises a number of fundamental points about the way our financial services industry works.

My friend, who is now 80, retired in 1987. He was given a tax-free lump sum and both he and his wife had pensions.

Shortly after investing his tax-free capital, the stock market crashed and significantly reduced the value of his holdings and the income they were generating.

Buoyed by their pensions and having paid off their mortgage, the couple decided to liquidate what was left of the investment and use it to enjoy their retirement.

Five years later they had spent the money and began to consider releasing capital from their house. In their financial naivety, they took out a 25,000 interest only loan, secured on their property.

Three years later this had been spent and a further 50,000 was arranged. The money was easy to come by, few questions were asked and it would all be squared off when the couple passed away. What could be simpler?

As time rolled on, money was given to children and grandchildren and a few alterations were made around the house. Ultimately the money was spent.

However, as the couple got older, they believed that their property would cover their debts on death and so there was no need to worry. To this end, they began using credit cards to supplement their modest pensions and without being extravagant slowly built up thousands of pounds of extra debt.

My friend's bank suggested he took out an unsecured loan to cover the credit card debt, allowing him to pay it off at a lower rate. However, the bank never once asked about his other financial commitments or how he planned to repay the money. The bank simply arranged the loan.

The severity of the situation only became apparent to my friend on the death of his wife, when the income from her pension stopped and servicing the debt from his own funds became virtually impossible.

People thought my friend's physical demise was due to grief, but it wasn't just that. In truth it was depression at the pressure he was under to meet monthly repayments on the unsecured loan.

His story is not unique and raises some fundamental questions.

How is it that anyone, let alone a retired couple, can be allowed and even encouraged to borrow money against their property on an interest-only basis?

How is it that a credit card provider will extend limits without properly considering what other debts an individual has, or his ability to repay?

Why will a bank lend on an unsecured basis without taking into account the customer's true financial situation?

Why are people not more stringently questioned over their existing financial commitments?

It frightens me that my friend has a better credit rating than any member of staff in my office. Surely the rating system should go on the assets a person has and their ability to repay, rather than rewarding debt?

I also wonder how many people are reading this, unaware that their own parents have stumbled into a similar nightmare.

Of course people have to take responsibility for their own actions, but that works both ways. If the banks don't exercise a sense of responsibility about whom they lend to, then how can we protect financial innocents from similar folly?

We teach people to say no to drink, no to drugs and no to strangers, but we freely encourage them to take on debt in crippling amounts.

The financial services industry has, in many regards, shamefully lost its way.

It is the nave and financially unsophisticated that get left with a bill that costs more than the money in their pocket. It also costs them their peace of mind and their dignity.

• Alan Steel is chairman of Alan Steel Asset Management.