affordable credit: what can the uk learn from other countries? marie burton, consumer focus dr chris...
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Affordable credit: what can the UK learn from other countries?Marie Burton, Consumer Focus
Dr Chris Deeming, PFRC, Bristol
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Key concepts
‘Affordable credit’
Credit that is affordable and appropriate for people on low incomes
‘Credit exclusion’
Unable to access credit either because it is unavailable or unaffordable
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UK context
UK consumer credit market
• €245.2 billion in 2008• 16.2% of GDP(second highest in the EU)• France 9 % of GDP• Germany 8% of GDP
(2008 figures: European Credit Research Institute, 2009
Source: OFT, 2009)
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UK context
• Sub-prime credit markets: ranking in terms of ‘development’
Member StateUKIrelandSpainNetherlandsBelgiumPortugalFranceFinlandGermanySwedenDenmarkNorwayItalyGreeceAustria
Highly developed
Somewhat developed
Undeveloped
Source: OFT (2009)
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UK context
Credit exclusion
• 30% no revolving credit, i.e. mainstream overdrafts and credit cards
(Eurobarometer, 2008 using 2003 data)
• 9 million excluded from mainstream credit (NEF, 2009)
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UK context
• Consumers’ options for borrowing if cannot get mainstream credit:
• State provision
• High-cost credit
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UK context
State provision
Discretionary Social Fund: grants and interest-free loans
Net expenditure 2010/11
Community care grants: £138.9 m
Budgeting loans: £26 m
Crisis loans: £104.7 m(DWP, July 2011)
Growth Fund
£137 million in loans between July 2006 and September 2010
- Ended March 2011
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UK context
• High cost credit market
• Valued at £7.5 billion in 2008 including:
• £900m payday loans• £600m pawnbroking• £1.26 billion home credit
(OFT, 2010)
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UK context
Growing consumer demand
• Payday loans estimated at £1.2 billion in 2009 (£0.33 billion in 2006)
• H&T pawnbrokers reporting record profits in 2010
"The overall outlook for the pawnbroking industry is good – there is a long way that it can go ... The austerity cuts could certainly increase things.” Steve Fenerty, H&T commercial director, March 2011
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UK context
Consumer attitudes
Form of Finance Quick to get Easy to access Easy to understand
Cheap Trust myself/gives me control
Want to help me
Payday loan Credit card Overdraft Personal loan Credit Union loan Store cards Car manufacturer finance
Pawnbrokers Loan from friends or family
Key:
Strongly Agree Strongly disagree
Payday loan users attitudes and views on financial products
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UK context
Credit provider Repayment period
APR Amount repaid
Typical Credit Union (at least 8 weeks saving required beforehand)
52 weeks 12.7% £318.64
Credit Unions (offering instant loans)26.6% APR, paid over 52 weeks
52 weeks 26.6% £337.99
Community Development Financial Institution (offering instant loans)
50 weeks 47.5% £357.50
Typical home credit company (home collection, APR 272.2%)
52 weeks 272.2% £546
Difference between the cheapest and most expensive
£227.36
Cost comparison of a £300 loan
Cost of borrowing
(Source: Making Ends Meet, forthcoming. Adapted from ‘Cost of Cash’ Consumer Focus Wales, 2009)
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UK context
Options for reform
• Government consultation on reform of consumer credit
• Rate caps – rejected by OFT in High Cost Credit Review in
2010– total cost of credit cap proposed in Private
Member’s Bill in 2011
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UK context
Options for reform
• Consumer Focus commissioned PFRC to look at how other countries deal with this issue
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Consumer Focus t 020 7799 7900Fleetbank House, f 020 7799 7901Salisbury Square [email protected] London www.consumerfocus.orgEC4Y 8JX