Banks are failing to verify customers’ incomes before granting them personal loans, new research shows.

About 70 per cent of borrowers were not asked for proof of income when applying for an unsecured personal loan, according to a survey released today by uSwitch, the price comparison website.

In a survey of more than 600 borrowers who took out a loan in the past 12 months, more than 83 per cent said that they had not been asked for evidence of their monthly outgoings — a common affordability check used on secured loans such as mortgages. A third of applicants said that they had not been asked about other forms of credit, such as overdrafts or credit cards.

Nick White, director of financial services at uSwitch, pointed to shortcomings in the Banking Code, a voluntary code of practice adhered to by all the leading banks. The code was toughened three months ago to require banks to carry out more robust credit checks on applicants, but uSwitch believes that it has not gone far enough.

Mr White said: “Existing guidelines need to be tightened to make income and affordability checks compulsory.”

The Banking Code says that banks should carry out at least two of four measures to assess whether a customer can afford to repay a loan. These include checking a customer’s income and financial commitments, checking their financial history, looking at information from credit reference agencies and credit scoring. But credit reference agencies do not have information on borrowers’ income, so a lender could abide by the code without actually ascertaining how much a borrower earns.

Robert Skinner, chief executive of the Banking Code Standards Board, denied that the code was failing. “I don’t accept that the majority of loans granted do not take into account borrowers’ ability to repay. It is different being asked about your income and being asked for proof. It is incumbent on borrowers to tell the truth.”

Brian Capon, of the British Bankers’ Association, said: “Nowadays banks are well placed to check on the information supplied by the customer on the application form through information already held by the bank for existing customers, credit reference agency checks and through greater sharing of positive data. It is ludicrous to suggest that eight out of ten loans were made without checks on ability to repay — these checks would not be apparent to the customer.”

Debt experts also highlighted the problem of debt consolidation loans. More than 90 per cent of borrowers who took out a loan to pay off other debts were not asked if the debt had been cleared, according to uSwitch. Malcolm Hurlston, of the Consumer Credit Counselling Service, said: “This is the issue that is most likely to lead people into difficulty.”

The figures from uSwitch come days after government figures showed that individual voluntary arrangements — pacts between lenders and borrowers in financial difficulty — soared by 117 per cent in a year.