It was confirmed earlier this month that five UK bookmakers – Bet 365, Flutter, GVC, Sky Betting and Gaming and William Hill – would increase their contributions towards fighting gambling addiction. The voluntary levy will see the firms increase their voluntary contributions from 0.1% of revenue to 1% within five years.
Some have been quick to criticise the bookies, suggesting the move is ‘too little, too late’, following fines from the Gambling Commission and the new controls on fixed odds betting terminals. In many respects, the credit industry can claim to be ahead in terms of conduct of business.
Yet a voluntary levy to help solve problem borrowing, possibly along similar lines to that announced by the bookies, might be worth exploring.
BBC Panorama’s recent Easy Money, Tough Debt episode suggested that the FCA’s cap on payday loans has not solved the problem of unaffordable credit for some consumers.
The HCSTC price cap may have shifted the problem of unaffordable consumer debt away from payday loans towards other types of non-prime credit, including unsecured installment loans, secured car loans, guarantor loans, credit cards, pawnbroking, home-collected credit, logbook loans and rent-to-own.
Some non-prime firms, particularly newer entrants with investor backing from investment funds, are growing rapidly – in some cases, offering a range of different types of credit (please contact me for details of a forthcoming report on the sector).
Panorama reported that some MPs including Stella Creasy are calling now for a price cap on all non-prime credit, based perhaps on similar caps in America. Last week a bill was passed in the California state Senate that would set an annual interest rate cap of around 40% on consumer loans of $2,500 to $10,000.
The momentum for tighter regulation is likely to grow as the non-prime credit sector expands to fill the gaps left by the decline of the payday sector.
Perhaps a better outcome for lenders and borrowers alike is for the industry to take more of a lead in solving the affordability problem. Of course, many lenders do already contribute to debt charities and to helping to develop industry best practices. The Independent Review of the Funding of Debt Advice, the Wyman review, also last year set out some important recommendations for how firms should contribute fairly to debt advice.
But could more be done? Following a similar approach to the bookies, perhaps lenders might contribute a proportion of revenue to support problem borrowing. Amongst other things, this might be used for technology-based initiatives to address affordability concerns, such as:
- More consistent, effective and efficient ways of checking affordability of loans or repayment plans
- Improved sharing of information between lenders, dealing not only with loans held but also covering existing repayment plans
- More widely publicised and standardised routes to fairly addressing debt problems at early stages, particularly where multiple lenders are involved
None of this seems beyond the capabilities of the industry, and some fintech solutions in these areas are already emerging. The issue is more one of organisation and coordination, so that the best technology can be adopted quickly and widely across the industry. That is unlikely to happen without some financial backing.
A voluntary levy to help solve problem borrowing could help avoid further regulation that risks outlawing loan options that are important to, and successfully used by, many non-prime consumers.
Julian Rose, Director, Asset Finance Policy