Citizens Advice calls for action on high-cost credit

Citizens Advice has called on the Government to act on high-cost credit. Matthew Upton, Head of Consumer Policy at Citizens Advice, will give evidence to the Government’s Treasury Committee as part of its inquiry into household finances today (Thursday 1st March).

The national charity says households are facing growing insecurity due to more unpredictable incomes and have less financial resilience as a result of a lack of savings, inflexible budgets and high levels of debt. A Citizens Advice report released last week revealed people struggling on volatile incomes – such as those on zero-hour contracts or in part-time work – are five times more likely to turn to high-cost credit products such as rent to own and doorstep lending.

To protect consumers, the charity is calling for the successful payday lending cap to be extended to other high-cost-credit products so that lenders do not charge customers more than twice what they borrowed.

Figures show:

• People using rent-to-own products pay up to 400% of the original credit value

• Outstanding doorstep loan debt has doubled since 2014

• More than 1 in 10 catalogue credit purchases ends in default.

Upton will give evidence alongside representatives from Stepchange and the Big Issue Foundation. Directors of Brighthouse, Morses Club and The Cash Shop will also appear before the committee today.

Matthew Upton, Head of Consumer Policy at Citizens Advice, said “A lack of savings, no slack in budgets and continued high levels of debt paints a picture of growing insecurity in household finances. At Citizens Advice we know households struggling with unstable incomes are five times more likely to turn to high-cost credit. There needs to be a safety net for vulnerable consumers to ensure they’re protected from the harm these products can cause and, so short-term financial difficulties do not spiral into persistent debt.

“We want to see the Financial Conduct Authority extend the success of the payday lending cap extended to other high-cost credit products including rent-to-own and doorstep lending. Such a cap will protect the most vulnerable from severe problem debt by ensuring they do not pay back to lenders more than twice what they borrowed. Longer term, we need better ways to help people save alongside alternative borrowing options for those who don’t have the option to get credit affordably from commercial providers.”