Transcript Marie Burton - Learning and Work Institute England

Affordable credit: what can the
UK learn from other countries?
Marie Burton, Consumer Focus
Dr Chris Deeming, PFRC, Bristol
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
UK context
UK consumer credit market
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€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)
UK context
• Sub-prime credit markets: ranking in terms of
‘development’
Member State
UK
Ireland
Spain
Netherlands
Belgium
Portugal
France
Finland
Germany
Sweden
Denmark
Norway
Italy
Greece
Austria
Source: OFT (2009)
Highly developed
Somewhat developed
Undeveloped
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)
UK context
• Consumers’ options for borrowing if cannot get
mainstream credit:
• State provision
• High-cost credit
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
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)
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
UK context
Consumer attitudes
Payday loan users attitudes and views on financial products
Form of Finance
Quick to get
Easy to access
Payday loan
Credit card
Overdraft
Personal loan
Credit Union loan
Store cards
Car manufacturer
finance
Pawnbrokers
Loan from friends or
family
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Strongly Agree
Cheap
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Trust myself/gives
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Want to
help me
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Strongly disagree
UK context
Cost of borrowing
Cost comparison of a £300 loan
Credit provider
Repayment
period
APR
Amount
repaid
Typical Credit Union (at least 8 weeks saving
required beforehand)
Credit Unions (offering instant loans)
26.6% APR, paid over 52 weeks
Community Development Financial Institution
(offering instant loans)
Typical home credit company (home collection, APR
272.2%)
Difference between the cheapest and most
expensive
52 weeks
12.7%
£318.64
52 weeks
26.6%
£337.99
50 weeks
47.5%
£357.50
52 weeks
272.2%
£546
£227.36
(Source: Making Ends Meet, forthcoming. Adapted from ‘Cost of Cash’ Consumer Focus Wales, 2009)
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
UK context
Options for reform
• Consumer Focus commissioned PFRC to look at
how other countries deal with this issue
Consumer Focus
Fleetbank House,
Salisbury Square
London
EC4Y 8JX
t 020 7799 7900
f 020 7799 7901
[email protected]
www.consumerfocus.org