A financial watchdog has released regulatory data on the high-cost credit market for the first time – and it has revealed that borrowers repaid more than 165 per cent of the cost of their original loans.
The Financial Conduct Authority’s (FCA) figures, for between July 2017 and June last year, showed that over 5.4 million loans were made in that time with £1.3bn borrowed and £2.1bn repaid in total.
— FCA (@TheFCA) January 24, 2019
The collapse of Wonga, who disappeared from the market last September, is not taken into account in the figures which show that lending volumes had been on the rise since 2016 – but were much lower than in 2013.
High-cost loans remain a huge driver of poverty, with soaring interest rates making payments soon stack up to unaffordable level, trapping people in debt.
North-west England has been particularly vulnerable to the rising prominence of high-cost loans with the highest number of loans per adult – there are 125 loans per 1,000 people in the region.
That is just shy of London, which accounts for 15 per cent of the country’s total loans and also has the highest value per loan at £284 compared to a countrywide average of £250.
In total, more than 92,000 people have sold The Big Issue since 1991 to help themselves work their way out of poverty – more than could fit into Wembley Stadium.
The FCA also indicated that around 70 per cent of high-cost loan borrowers are over-indebted compared to just 15 per cent of UK adults, while almost 40 per cent are tenants while five out of six are working full-time.
A rent-to-own price cap was introduced in November to stop customers paying over the odds for a product when footing the bill across instalments.
“While the price cap was a good move from the FCA, problems in the high cost short term credit market are far from over,” said Richard Lane, director of external affairs at StepChange Debt Charity. “The FCA figures show payday lending rising again, and financially stretched young people are still most likely to resort to high cost credit – which matches what we see among our clients.
“All too often this type of credit is what people turn to get by when they are already struggling to meet their commitment.”
Big Issue Invest, our social investment arm, also works with fair credit companies who offer an alternative to high-cost lenders, including FairForYou and Five Lamps.
Gillian Guy, chief executive of Citizens Advice, added: “These credit products are aimed at people who have little choice but to borrow to meet the cost of essentials, often leaving them heavily in debt after taking out small loans.
“Our evidence shows that well-designed caps can prevent costs spiralling out of control, as the FCA has done in the payday loan market.”