As the Financial Conduct Authority (FCA) conducts its review of the price cap, over 600,000 consumers of short term loans may no longer have access to credit, according to new evidence from the Consumer Finance Association (CFA) conducted with assistance from economic analysts, Oxera.
Without access to a regulated form of finance many consumers are unable to take action to manage their cash flow or cover emergency financial costs. They could end up turning to more expensive forms of credit or using an overdraft facility, which could cost up to £180 in fees, according to a recent report from the Consumer Group Which?2.
This compares to new figures prepared for the Consumer Finance Association (CFA) by the Social Market Foundation, which found that 92 per cent of borrowers were not charged any additional fees, beyond the contractual interest. Where fees are charged, this has fallen from £45 in 2013 to £24 in 20173.
The changes introduced by the FCA were expected to reduce the access to High-Cost Short-Term Credit for around 250,000 people a year. Instead more than twice as many people are excluded annually (600,000), according to analysis from the CFA conducted with assistance from economic analysts, Oxera.
Russell Hamblin-Boone, CEO of the Consumer Finance Association said:
“Important questions remain about the impact of regulatory intervention on the availability of credit. The CFA estimates around 600,000 people annually no longer have access to credit, which is more than double those expected to be excluded by the changes. In order for the demand from customers to be met by responsible lenders we need fair and equitable regulation across all credit services, especially robust affordability checks.”
Research shows that for consumers eligible for credit the cost of borrowing is down by £36 for a 30-day loan. Overall the number of loans approved has dropped by 42 per cent since 2013 and over half of consumers say they find it harder to access credit since the price cap was introduced.
The Consumer Finance Association is calling on the regulator to ensure access to credit is not restricted by the changes and for fair and equitable treatment of all consumer credit providers in the market.
A YouGov survey commissioned by the CFA shows that the typical customer using High-Cost Short-Term Credit is male earning between £20,000 and £25,000, aged between 25 and 39, and is in full-time employment4.
The FCA is currently carrying out a review of the High-Cost Credit market and the Consumer Finance Association has submitted evidence to the review based on two new pieces of research.
For more information contact Tim Matthews, firstname.lastname@example.org or 020 3178 7415.
Notes to editors
1. Impact of regulation on High-Cost Short-Term Credit, CFA, 2017
2. Which? press release – http://press.which.co.uk/whichpressreleases/overdraft-charges-could-cost-156-more-than-payday-loans/
3. A modern credit revolution: An analysis of the short-term credit market, CFA/SMF Nov 2016
4. The data from YouGov comes from two Recontact surveys commissioned by the CFA. The first survey was carried out on 1,202 short-term credit consumers who had taken loans between 2013 and 2016 was conducted in July 2016. The results were weighted to create a nationally representative sample. The second survey was carried out on a respondent sample of 2,058.
About the Consumer Finance Association:
The CFA is the principal trade association representing the interests of some of the best known short-term lending businesses operating in the UK. Members include Lending Stream, Mr Lender, MyJar, Payday Express, Payday UK, Peachy, Quick Quid, Satsuma, Speedy Cash, Sunny, The Money Shop and WageDayAdvance.