Over 600,000 consumers of short term loans may no longer have access to credit, according to a report by the Consumer Finance Association (CFA) and 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 Which?Consumer Group report. 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 2017. 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 employment.
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.