262.The Committee heard a wide variety of evidence on the relationship between financial exclusion and the use of various forms of consumer credit. We heard that, for the many low-income households who lack a savings buffer, credit of various kinds was an essential way of managing the family finances in a world where both income and expenditure needs can spike at unrelated times.
263.High-cost credit refers to certain parts of the consumer credit market where the interest rates and other costs are significantly higher than in standard consumer credit agreements.
264.Four parts of the sector considered during the Committee’s inquiry were:
265.The first of these forms of high-cost borrowing—unarranged overdrafts—is somewhat different from the others. We were told that HCSTC, home-credit and rent-to-own are in large part used by ‘credit-restricted’ individuals who “struggle to secure credit at reasonable interest rates” and are typically declined by mainstream banks and lenders. They are often in work, but may have irregular work patterns, including zero-hours contracts, or are moving in and out of part-time employment and social security benefits, so their ability to repay a regular amount is uncertain.
266.By contrast, the evidence we received suggested that unarranged overdraft use is common at all income levels. Analysis by the Competition and Markets Authority, for instance, “did not find large differences in demographics between customers who do not use an overdraft and those who use unarranged overdrafts”. Those on lower incomes and at risk of financial exclusion, however, did use unarranged overdrafts, and were less likely to have any arranged overdraft provision than people on higher incomes.
267.Restrictions on some forms of high-cost credit were imposed by the Financial Conduct Authority in 2014 and 2015 (see paras 284–286). Unarranged overdrafts were specifically exempted from the FCA’s definition of high-cost, short-term credit. We were, however, told that many unarranged overdraft facilities involved similar levels of cost to the more traditional high-cost credit products, and could be worthy of inclusion within the FCA’s restrictions on HCSTC. The Financial Services Consumer Panel in particular argued that unarranged overdrafts ought not to be explicitly exempted from HCSTC credit restrictions:
“It is not clear why different consumer credit products are subject to different regulatory treatment and rules, particularly when ‘mainstream’ credit products are the major cause of over-indebtedness in the UK.”
268.Research published by Which? in February 2017 supports this view. This research compared the cost of borrowing £100 for 30 days and found that unarranged overdraft charges at some high street banks were over seven times higher than the maximum permitted interest of £24 per £100 borrowed on a HCSTC loan. The research concluded that some high street banks would charge customers borrowing £100 up to £156 more than HCSTC providers are allowed to charge for the same borrowing period.
269.The BBA told us that unarranged overdrafts were often triggered by standing payments such as utility bills, council tax or rent, suggesting that it was important to consider the cost of the unarranged overdraft relative to the cost of the regular payment being declined. They noted, however, that it might be possible to improve current practices by ensuring that internal policies flagged up, and provided support to, regular users of unarranged overdraft facilities. We also heard that many banks are already using services such as text alerts to warn customers when they are approaching their overdraft limit so they can put funds in their account and avoid any charge.
270.In August 2016 the Competition and Markets Authority (CMA) published the final findings of its review into the retail banking market. The CMA recommended, as part of its findings, that each bank should be required to set a maximum monthly charge (MMC) for unarranged overdraft charges. The MMC would specify a maximum amount that the bank can charge a customer during any given month, taking together all unarranged overdraft charges including debit interest and unpaid items fees that the bank charges. Banks would be required to disclose the MMC associated with each of the accounts that they offer.
271.We were told that many of the major banks already set, and publicise such a cap, but that this was not effective:
“Many of the main banks already have self-imposed caps, yet we still see people who are chronically excluded and in chronic financial difficulty picking up £45 a month charges in five or six months out of 12”.
It was suggested, therefore, that the regulator should instead directly impose a cap on overdraft charges of this nature, to be set at an appropriate level.
272.We considered this proposal with Professor Alasdair Smith, Chair of the CMA Retail Banking Market Review. Prof Smith explained that the imposition of a defined cap, at a level set by the regulator, could have wider detrimental effects. In particular, he noted concerns that banks might withdraw the provision of unarranged overdraft facilities to affected customers, leading to utility bills and other payments being unmet, suggesting that:
“I suspect many customers, though they dislike paying an unarranged overdraft charge, would dislike even more having their energy bill not paid, with all the consequences that flow from that”.
He noted, however, that the FCA has agreed to undertake further work on unarranged overdraft charges, as part of the wider review discussed later in paragraph 293 of this chapter.
273.We note the concerns that have been expressed regarding the particularly high costs that can be accrued through unarranged overdraft charges. It is clear that unarranged overdraft fees are unacceptably high, and that intervention to moderate the negative effect of these excessive charges is urgently required.
274.We recommend that regulations to limit and manage the negative impact of unarranged overdraft charges should be introduced. The potential for such regulations should be assessed as part of the ongoing FCA review into high-cost credit. (Recommendation 15)
275.The other forms of high-cost credit highlighted in paragraph 264 are typically experienced by a narrower group of customers—those ‘credit-restricted’ individuals who “struggle to secure credit at reasonable interest rates” and are typically declined by mainstream banks and lenders.
276.It is often also the case that these borrowers cannot access more mainstream credit sources because their credit records are either ‘thin’ (that is, they have not taken out much credit and there is therefore very little evidence as to their behaviour with it) or ‘poor’ (that is, they have failed to repay credit agreements before).
277.We were also told that there were some parts of the high-cost credit market where demand had, to a degree, been artificially created through marketing. Rather than being an issue of latent demand, with an untapped customer base waiting to find a solution to its credit needs, it was suggested that television advertising was being used to market a quick, easy and tempting technological offer. Martin Lewis highlighted the “nightmare scenario” of “people watching a payday loan advert at 11pm while they are drunk and then a gambling advert” immediately afterwards, and said there was evidence that this had an impact on behaviours. This concern was shared by the Money Advice Trust, who noted that “when young people reach 16 to 24 and are thinking about borrowing, they are more likely to go for high-cost credit than the mainstream alternatives”, purely because the marketing was so “slick” and the online experience so easy.
278.We were told that the higher costs of these products could be related to the commercial feasibility of providing them to the customer base concerned, with two particular elements emphasised:
279.It could be argued that the use of these kinds of credit is often in itself evidence of financial exclusion, as many customers turn to high-cost credit sources only when they do not have the choice of other sources. BrightHouse told us that its customers had limited options, beyond the use of a rent-to-own service, when they need a new household item. Martin Lewis took this argument further:
“When you have a product that most people would not get because it is really expensive, it tends to be vulnerable consumers and less well-educated people with fewer options who get it. So, by definition, that end of the financial services market is predatory and preys on vulnerable people.”
280.In addition, we heard that high-cost short-term credit can reinforce financial exclusion and exacerbate the ‘poverty premium’ because of the higher interest and charges associated with it. Demos noted that:
“The unbanked and underbanked typically face higher borrowing costs too. If people are unable to access credit in the form of a bank or credit union loan or an overdraft, they are more likely to fall into the hands of high-cost forms of credit, such as payday lenders, and increase their chances of accumulating problematic levels of debt, which then makes financial exclusion more likely”.
281.StepChange told us that people using credit as a ‘safety net’ to meet essential needs were much more likely to be struggling financially. They reported that 36% of people using credit in this way were falling behind on bills and credit commitments compared to just 7% of the overall population. In 2016 the charity had found that clients with high-cost credit debts were more likely than other clients to have rent, Council Tax, utility or water arrears as well.
282.We heard that extra costs were partly due to the high interest rates associated with these products, but also because of the additional costs bundled into them. This, we heard, was especially the case in the rent-to-own sector, where some companies regularly come under criticism for their “high interest rates, lack of transparency and practice of compulsorily bundling warranty and other charges into the total cost of the product”. This leads to a concern that these companies are generating “high levels of income from non-lending sources, such as late fees, arrangement fees, exit fees, change of contract terms, warranties and insurances”.
283.There were also concerns regarding the affordability checks carried out by companies in the sector, with suggestions that these could push customers deeper into financial exclusion. StepChange told us that one-third of the debt advice clients they saw regarding high-cost credit had more than one loan being repaid at once, arguing that this showed “there are still issues with affordability assessments and responsible lending”. In contrast, however, BrightHouse was keen to emphasise its affordability checking process, which they said was “one of the most stringent . . . in the market today”.
284.In 2014 and 2015 the Financial Conduct Authority introduced new regulations on the HCSTC sector. These new regulations included limiting the number of times a loan could be rolled over, stopping lenders from using Continuous Payment Authorities to collect payment more than twice, introducing stronger mandatory affordability checks, and setting caps on interest rates and overall costs to the customer.
285.The price cap on HCSTC loans was established to protect consumers from excessive charges, and was introduced under Section 131 of the Financial Services (Banking Reform) Act 2013. Firms offering HCSTC loans must meet the following criteria:
286.The regulations do not cover all areas of high-cost credit, however. They are limited to loans where the APR is 100% or more, the length of the loan is less than 12 months and the loan is not secured by a mortgage, charge or pledge. In their current form, the regulations also explicitly exclude home-collected credit and unarranged or emergency overdrafts.
287.The FCA told us that they had warmly welcomed what might be described as the legislative and political cover that had been provided by the Financial Services (Banking Reform) Act 2013, as this had enabled them to set the requirements and caps without fear of the legal challenge that might have come from the HCSTC industry if they had imposed the cap under their own powers.
288.They also set out the consideration they had given to design of the cap, including the rate at which it was set and the products it applied to, suggesting that this was:
“A matter of finding the balance point at which, on average, consumers using HCSTC would benefit from lower prices, but those who could no longer access [it] would, on average, benefit from no longer borrowing HCSTC.”
In addition, the continued commercial feasibility of the HCSTC sector was accounted for; the FCA told us that they had sought to ensure that they did not suffocate the HCSTC industry entirely, for fear that people in need of short-term credit would instead resort to illegal lenders.
289.We were informed that the introduction of these regulations had had a major impact. The Association of British Credit Unions Ltd (ABCUL) pointed out—and many witnesses agreed—that “the effect of the introduction of FCA regulation into the consumer credit market and the cap and other requirements on payday lenders has been to disrupt the traditional payday lending model very successfully. Other less scrupulous lenders have also been forced out of business or into more responsible forms of lending which take better account of consumer needs.”
290.It was reported that 54% fewer payday loans had been issued in the first quarter of 2014 than in the same period in 2013, and that the number of loans made in the first half of 2015 had dropped to 1.8 million, compared to 6.3 million in the first half of 2013. The Consumer Finance Association estimated that the market as a whole had contracted by almost 70% as a result of the new regulations, and that the number of firms offering the products had fallen from 240 to around 60.
291.Tellingly, the Consumer Finance Association also reported that it had seen member organisations’ business structures change significantly:
“It used to be about having big collections teams to recover as much debt as possible that had been lent to as many people as possible. Now it is about doing rigorous affordability checks, which include using big data, advanced technology and analytics to make a decision not only about whether the firm can get its money back, but about whether it is affordable for the customer to take credit. That way, firms reduce the amount of collections costs, because fewer and fewer people are defaulting on their loans.”
This chimed with the findings of the FCA, who told us there had “been improvement in the standards of affordability assessments in firms, and debt advice organisations have told us that they see substantially fewer problems with HCSTC debts than has previously been the case.”
292.The Financial Services Consumer Panel told us that the new FCA restrictions had led to companies creating new products that fitted just outside the FCA’s rules. They suggested that “gaming the system is inevitable when such a small part of the lending market is subject to strict rules.”
293.This is an example of what the FCA referred to as ‘a waterbed effect’—where an attempt to squash an activity in one part of the market only leads to its rising up in another sector. It is partly with this in mind that the FCA launched a wide-ranging review of the HCSTC regulations in November 2016, beginning with a ‘call for input’ from the government, banking and third sectors. The review will consider the effectiveness of the HCSTC restrictions in protecting consumers, their impact on the industry, and whether it would be of value to extend the restrictions to other high-cost products.
294.It was suggested to us that the success of the HCSTC regulations might provide justification for broadening their scope. The Centre for Responsible Credit expressed dismay and incomprehension that home-collected credit had been left out of the cap. The Money and Mental Health Policy Institute, meanwhile, noted the similarity of the exempted home credit and rent-to-own sectors to HCSTC, while HM Treasury agreed that “there are aspects of [the rent-to-own sector] that look very much like the payday lending practices that we introduced the new regulations to stop”.
295.The rent-to-own sector was often highlighted as an area where increased regulation on the part of the FCA would be welcomed. It was suggested that capping just one area of the market had had the effect of encouraging different high-cost lenders to step in to serve the customer base concerned. We were told, in this context, that “things such as rent-to-own in particular have expanded in recent years, and they are extraordinarily expensive ways to borrow”.
296.Dr Christine Allison highlighted the recent high growth rate of the rent-to-own sector:
“Like most forms of high cost borrowing in the UK, the rent-to-own sector has experienced huge growth following the onset of the recession, establishing itself as ever present on the high streets of our more deprived towns, cities and communities. It enables over 400,000 households, almost exclusively with low incomes and reliant to some degree on benefits, to take out expensive credit to spread the cost of purchasing consumer goods . . . It has proven to be recession proof, more than doubling in size over the last five years since the onset of the economic crisis”.
She went on to explain that:
“The business model relies upon costly hire purchase arrangements whereby the customer has a credit agreement but does not actually own the goods outright until the last payment. Therefore, in addition to the huge cost of purchasing the products, falling behind with repayment means customers face losing goods . . . A number of other unfair practices have also been highlighted - all shown to compound the debt trap for many low income families”.
297.StepChange supported this view, noting that:
“There are still some quite difficult practices in that market. We want to see [regulation] go further. A lot of bundling goes on. You have to take out very expensive warranty products alongside the actual goods, and some of the collection and repossession practices in those markets still need straightening out . . . There is room for intervention in a variety of different high-cost credit markets”.
298.The FCA suggested that the Authority was considering issues relating to the rent-to-own sector:
“You then have the other aspects of highcost credit, which are still there, and that includes the socalled ‘rent-to-own’ sector, which has obviously got quite a lot of attention recently as well. This is the case of how much the cost of credit is to buy a washing machine if you are in the rent-to-own sector, and how it is up to three times as much to buy a washing machine in that than if you go into a shop and buy one. We are going to be reviewing that, and indeed we already are reviewing rent-to-own”.
299.We welcome the significant positive impact that high-cost, short-term credit regulations have had on the market so far. We note the importance of the political and legislative cover provided by the Government amendment to the Financial Services (Banking Reform) Act 2013. This is evidence of the positive change that can be secured through Government leadership and proactive regulation. In this context, we welcome the launch of the Financial Conduct Authority’s review on high-cost credit and look forward to its findings. It is our strong belief that this review should result in further regulation of other high-cost credit sectors, and particularly the rent-to-own sector.
300.We recommend that the Government provide all necessary assistance, including legislation where needed, to further combat financial exclusion caused or exacerbated by high-cost credit. We believe that the FCA review of the wider high-cost credit sector should consider seriously the potential value of further regulatory action. Regulations should be put in place in other parts of the high-cost credit sector, particularly the rent-to-own sector; we hope that the FCA review will give full consideration to this possibility. (Recommendation 16)
301.Concerns relating to the high cost of credit led witnesses to emphasise the greater promotion of and support for credit unions and community development finance institutions (CDFIs) to fill the gap in affordable provision.
302.Credit unions—which are not-for-profit co-operatives owned by their members—provide unsecured personal loans at a relatively low cost: interest rates are legally capped at 3%, which amounts to 42.6% APR. We heard that credit unions had a relatively low market share in Great Britain (just under 3%) compared to the rest of the world (8%), the United States (44%) or even Northern Ireland (36.9%).
303.The limited size of the credit union sector is one reason why it is not ready to absorb the demand for unsecured credit that has hitherto been, and still is, taken up by the high-cost sector. We considered the reasons behind the limited share of the market held by credit unions; one reason given was simply that credit unions had a limited history in Britain. ABCUL pointed out that in some parts of the world credit unions had taken root at a time when most people (up to 97%) were outside the retail bank account network. Thus credit unions had had the opportunity to bed into mainstream life without the obstacle of a mature retail banking system. By contrast, when legislation first provided for credit unions in the 1970s in Britain, the retail banking market was already well established.
304.In addition, it was noted that legislation in some countries required banks to provide a greater degree of support and investment to third sector lenders. We were told that, in the USA, the Community Reinvestment Act requires banks to invest in responsible finance providers as a way of demonstrating that they are reinvesting into the communities in which they take deposits. The Centre for Responsible Credit suggested that, as a result, “trillions of dollars have flowed from banks through credit unions and other local economic development in the United States”. It was suggested that it is currently difficult for UK banks to lend to credit unions and CDFIs due to assessments regarding the risk attached to smaller organisations, and related regulatory requirements. However, ABCUL noted that a number of banks were currently providing their highest ever levels of support to the UK credit union sector.
305.Other witnesses highlighted structural issues affecting the growth of the credit union sector. Credit unions had traditionally obtained their deposits from their members, who were by definition the same, generally low-income customer base as the cohort to whom they would lend. In addition, credit unions tended to be small, locally run organisations—perhaps necessarily, on account of the ‘common bond’ rule, whereby members must have something in common such as a local area, a social landlord or membership of a church. This small scale led, we were told, to duplication of work and failure to harness economies of scale, which could make expansion difficult. The Centre for Responsible Credit suggested that “this is a recipe for very slow growth”.
306.Despite this, we were told that the sector had strengthened rapidly over the last decade, and that this was, in part, due to Government intervention beginning with the Financial Inclusion Growth Fund:
“Credit unions’ participation in the Growth Fund from 2006 to 2011 saw over 400,000 affordable loans made with funding from the Financial Inclusion Fund. Loans made under the fund saved recipients between £119 million and £135 million in interest payments that otherwise would have been made to high-cost lenders.”
307.From 2013 to 2015 the DWP’s Credit Union Expansion Project invested £38 million into capacity building measures for the sector, involving technology, organisational structures, resourcing and, most practically, a shared online banking system, onto which a number of larger credit unions are now slowly but successfully transitioning.
308.The Credit Union Expansion Project has been channelled through ABCUL, which is the UK’s largest trade association for credit unions representing credit unions throughout England, Scotland and Wales. It is also worth noting that there are other trade bodies for credit unions—UK Credit Unions (UKCU) and ACE in particular, while credit unions in Northern Ireland are represented by other bodies including the Ulster Federation of Credit Unions and the Irish League of Credit Unions.
309.These programmes have had a notable positive effect. The credit union sector has doubled its membership and tripled its asset base in the last 10 years. Leeds City Credit Union praised the capitalised nature of the funding received under the Growth Fund (as opposed to grant funding to cover running costs), and reported that the capital from that project was now embedded in the credit union’s own resources and continued to be recycled as lending for the financially excluded. ABCUL explained that the Credit Union Expansion Project also included some capitalised funding, which it too reported had enabled the sector to begin to expand further.
310.In a similar vein, the Centre for Responsible Credit supported the injection of “patient capital” rather than grant funding going forward:
“The problem with the development of affordable credit in this country has been that lots of capital was given for pilot projects and so forth, expecting them to become self-sufficient within three to five years. It is the opposite in the commercial world, where venture capital is put out for very long periods of patient time. It is expected that the recipients get to scale and then start paying back, not that they start paying back [before they get] to scale.”
311.We were told that capital funding was also coming from the private sector, and that Lloyds had invested £4 million of capital into credit unions. ABCUL described how this had helped its members:
“Because credit unions are regulated deposit takers, we must maintain minimum capital levels. For the larger credit unions, for every £1 million they grow they need to put £80,000 aside. Because we are mutuals, that can only come from the profits that we make, not from a third party. Lloyds is doing exactly that. That has completely transformed the process of investing in the sector.”
312.There was also some interest from witnesses in changing the regulation of credit unions to allow them to operate in markets hitherto occupied by for-profit and often high-cost lenders. ABCUL, for example, suggested that credit unions might be permitted to operate in the rent-to-own and credit card sectors to provide competition to the companies there, and remarked that this kind of broadening of scope was very common in parts of the world where credit unions were more widespread. Leeds City Credit Union told us that enabling credit unions to have greater access to the ATM network would make their services more readily accessible to all, including those experiencing financial exclusion.
313.One innovative proposal for increasing the reach of credit unions comes from Affordable Lending Ltd, whose ‘Affordable Loans’ project is a joint piece of work between a group of credit unions and CDFIs (see paragraph 323 below), and a group of private sector providers—including Barclays and Asda Money—to provide access to affordable, local third-sector credit solutions for people in their local area. The organisation told us that:
“The simple plan for Affordable Lending was to create a national online market place where local and regional community finance providers could be connected to customers looking for affordable loans (as an alternative to the high-cost credit market).”
314.Affordable Lending told us that its model would be sustainable for both lenders and referring organisations through a system of minimal fees for referrals and because the retail partners such as Asda would reap the benefit of customers spending less money servicing their debts.
315.Some witnesses noted that wider changes to the credit union sector could be seen to represent a loosening of the “common bond”—the central principle of credit unions where by borrowers are borrowing from members of their own community—and that some credit unions, especially smaller, more locally-based ones, might have reservations about these processes, or are content with their legally prescribed role as it is.
316.Notwithstanding this, we believe that the credit union sector has an invaluable role to play in meeting a demand for small-scale credit to smooth income and expenditure among people on low incomes. This sector provides an important alternative source of credit that could enable customers to avoid using high-cost lenders.
317.We note, however, that the credit union sector is not large enough to satisfy this demand at present, nor can it focus solely on financially excluded customers. We acknowledge that credit unions play a much bigger role in other European countries and the United States, and regret that their structure and the range of services they can provide in this country appear to limit their growth rate.
318.We welcome the work of the DWP and ABCUL, through the Credit Union Expansion Project, to address some of the issues limiting the growth of the sector in Great Britain. The new investment streams that credit unions have accessed—both private and public sector—will, we hope, lead to further expansion on a stronger financial basis. We also welcome the capacity-building and technological aspects of the Expansion Project, and urge credit unions to take the opportunities represented therein.
319.We note with interest the innovative ideas put forward by some witnesses to broaden the scope of credit unions—for instance, that credit unions could provide a greater array of products and, in particular, could provide services which are currently delivered through the rent-to-own and credit card sector; that future Government funding provided to the sector should take the form of repayable long-term investment capital rather than grant funding for ongoing expenses; and that banks should play a greater role in the provision of investment capital to the sector.
320.However, we are aware that a defining feature of credit unions has traditionally been the common bond and that many of the innovations mentioned above would make credit unions more like banks. We acknowledge that some parts of the credit union sector might be unwilling to risk the loss of this distinctive feature.
321.We recommend that the Government should expand the scope of products that credit unions can choose to provide to their members and, where appropriate, should amend the rules under which credit unions operate in order to enable them to take up these opportunities. (Recommendation 17)
322.We recommend that the Government funding provided to the sector should take the form of repayable, long-term investment capital rather than grant funding for ongoing expenses—following the pattern of the successful Financial Inclusion Growth Fund. We also recommend that the Government should work with representatives of the banking and credit union sectors to develop proposals to increase the lending, at reasonable rates, of investment capital to credit unions. (Recommendation 18)
323.The Committee also heard evidence concerning community development finance organisations (CDFIs). CDFIs are not-for-profit enterprises, lending to individuals and small businesses at rates much lower than banks or commercial short-term credit providers. They do not, however, have a ‘membership’ to take savings deposits from, instead relying on investment capital from commercial and public-sector sources, which is then recycled through lending at interest rates which, while higher than credit unions (normally around 100% APR) are still far more reasonable than the commercial sector. They are themselves social enterprises, providing support as well as finance, giving extra help and advice where needed. Each CDFI is unique, serving local needs. CDFIs are currently a small part of the third-sector lending landscape with only 60 enterprises operating in the UK, serving around 50,000 customers.
324.While community development finance institutions are, at present, only serving a small part of the credit market we believe that they, too, could play a role in providing more affordable lending to those who are currently accessing the high-cost credit market. As such, they merit inclusion and consideration in future work which seeks to provide solutions for this segment of customers. We note in particular that, while some parts of the credit union sector may be wary of taking investment funding from Government or the private sector, or providing more complex financial products than personal loans, we have not heard such reservations from the CDFI sector. The Government might therefore consider how to promote such options for this sector.
374 See (Damon Gibbons) and written evidence from Leeds City Council ().
375 Written evidence from the Consumer Credit Association ()
376 See the websites of the largest providers, Brighthouse, , Buy as you View, and PerfectHome, [all accessed 14 March 2017].
377 Written evidence from SalaryFinance ()
378 Centre for the Study of Financial Innovation, Reaching the poor: The intractable nature of financial exclusion in the UK (December 2016) p 15: , [accessed 14 March 2017]
379 Written evidence from the Competition and Markets Authority ()
381 Financial Conduct Authority Handbook glossary, ‘High-cost short-term credit’: [accessed 14 March 2017]
382 (Polly Mackenzie) and (Sue Lewis)
383 Written evidence from the Financial Services Consumer Panel ()
384 Financial Conduct Authority, PS14/16: Detailed rules for the price cap on high-cost short-term credit - Including feedback on CP14/10 and final rules (November 2014): [accessed 14 March 2017]
385 Which?, Overdraft charges could cost £156 more than payday loans (8 February 2017): [accessed 14 March 2017]
386 (Eric Leenders)
388 Written evidence from Barclays (), BBA () and the Money and Mental Health Policy Institute ()
389 Competitions & Markets Authority, Making banks work harder for you (9 August 2016): [accessed 14 March 2017]
390 (Francis McGee)
391 Ibid. See also written evidence from the Co-operative Bank () and the Financial Services Consumer Panel ().
392 (Prof Alasdair Smith)
394 Written evidence from SalaryFinance ()
395 See, for example, (Hamish Paton) and (Russell Hamblin-Boone), and written evidence from Provident Financial Group () and Non-Standard Finance ().
396 (Martin Lewis OBE)
398 (Russell Hamblin-Boone)
399 On Wonga.com the maximum is £400. The maximum initial sum borrowable through home-collected credit company Provident is £1,000. The rent-to-own sector, epitomised by stores such as BrightHouse and Pay As You View, focuses on providing credit for buying household items costing up to a few hundred pounds.
400 (Faisel Rahman OBE), see also written evidence from Provident Financial Group ()
401 It should be acknowledged that this is not the only reason, however. Some customers of home-collected or high-street based credit may prefer this because they may value the personal contact with their collector, perhaps because of a lack of digital or literacy capability, or because those services are long embedded within their community. See (Faisel Rahman OBE). Others may value the speed and convenience of the web-based payday loan offer.
402 (Hamish Paton)
403 (Martin Lewis OBE)
404 Written evidence from Demos ()
405 Written evidence from StepChange Debt Charity ()
406 StepChange Debt Charity, Payday Loans: The next generation (2016) p 11: [accessed 14 March 2017]
407 Written evidence from Buy as You View ()
408 Written evidence from Fair for You Enterprise CIC ()
410 (Hamish Paton)
411 See Financial Conduct Authority, ‘Tougher rules for payday lenders take effect’: [accessed 14 March 2017]
412 The following explanation is from : “Most payday lenders will use a CPA (Continuous Payment Authority) to collect payment. This is a way of taking money from your bank account that gives the lender the right to take payment on any date they like, and any amount they like. This is important because although lenders should let you know when they plan to take payment and how much it’ll be, not all do. Under the new FCA rules, lenders will be limited to only two failed CPA attempts. This means that they can’t continually try to withdraw money from your account when you don’t have the funds available, and instead will need to contact you to find out what’s going on.” Money, ‘Payday loan guides’: [accessed 14 March 2017]
413 Financial Services (Banking Reform) Act 2013, . The cap came into force on 2 January 2015. See Financial Conduct Authority, FCA confirms price cap rules for payday lenders, (11 November 2014): [accessed 17 March 2016]
414 Financial Conduct Authority, Price cap on high-cost short-term credit (23 November 2015): [accessed 14 March 2017]
415 (Christopher Woolard)
416 Written evidence from FCA ()
417 (Andrew Bailey)
418 Written evidence from 2 Shires Credit Union (), Carnegie UK Trust (), Experian (), Financial Services Consumer Panel (), Money Advice Trust () and StepChange Debt Charity ()
419 Association of British Credit Unions Ltd ()
420 Written evidence from Carnegie Trust ()
421 Written evidence from FCA ()
422 (Russell Hamblin-Boone)
423 (Russell Hamblin-Boone)
424 Written evidence from FCA ()
425 Written evidence from the Financial Services Consumer Panel ()
426 (Andrew Bailey)
427 Financial Conduct Authority, Call for Input: High-cost credit Including review of the high-cost short-term credit price cap (November 2016): [accessed 14 March 2017]
428 (Damon Gibbons)
429 (Polly Mackenzie)
430 (Gwyneth Nurse)
431 (Damon Gibbons)
432 (Damon Gibbons)
433 Written evidence from Dr Christine Allison ()
435 (Francis McGee)
436 (Andrew Bailey)
437 See, for instance, (Chris Pond) and (Martin Lewis OBE).
438 Find Your Credit Union, ‘About credit unions’: [accessed 14 March 2017]
439 Centre on Household Assets and Savings Management, University of Birmingham, Briefing Paper BP9/2015, Credit unions in the UK—balancing social benefit with economic viability (August 2015) p 2: [accessed 14 March 2017]
440 About 100 million Americans are now using credit unions. Should you join them?, The Washington Post, (5 August 2014): [accessed 14 March 2017]
441 Bank of England, Introduction to credit union statistics (29 July 2013): [accessed 14 March 2017]
442 Written evidence from Buy As You View (), Fredericks Foundation (), Carnegie UK Trust (). It should also be noted that credit unions have previously said that they should not be seen solely as a way of providing affordable credit to financially excluded people, as this was commercially unsustainable. See in particular HM Treasury, British Credit Unions at 50: Response to the call for evidence (December 2014) p 9: [accessed 14 March 2017]
443 (Mark Lyonette)
444 Written evidence from Responsible Finance ()
445 (Damon Gibbons)
446 (Faisal Rahman OBE)
447 (Mark Lyonette)
448 (Damon Gibbons)
449 Written evidence from Association of British Credit Unions Ltd ().
The Growth Fund was a fund provided by the DWP in 2006–11. Its aim was to raise levels of access to affordable credit by building the capacity of third sector lenders to serve financially excluded households. In doing so, the Growth Fund aimed to disrupt the role of high cost credit in the lives of borrowers. See Collard, Hale and Day, University of Bristol, Evaluation of the DWP Growth Fund, (December 2010) p 5: [accessed 14 March 2017]
450 (Mark Lyonette). Evidence on the impact of the Credit Union Expansion Project was not, however, universally positive, with Leeds City Council and Leeds City Credit Union reporting that the costs of taking part in the project—particularly the aspects involving the unified banking platform —were becoming unsustainably high for larger credit unions.
451 ABCUL, Making a difference [accessed 14 March 2017]
452 University Federal Credit Union, ‘Homepage’: [accessed 14 March 2017]
453 Credit Union, ‘Homepage’: [accessed 14 March 2017]
454 Centre for the Study of Financial Innovation, Reaching the Poor: the intractable nature of financial exclusion in the UK (December 2016) p 32: [accessed 14 March 2017]
455 Written evidence from Leeds City Credit Union ()
456 Written evidence from ABCUL ()
457 (Damon Gibbons)
458 (Mark Lyonette)
460 Written evidence from Leeds City Credit Union ()
461 Written evidence from Affordable Lending Ltd ()
463 (Sir Brian Pomeroy CBE) and (Gwyneth Nurse)
464 Credit union policy in Northern Ireland is devolved to the Northern Ireland Assembly, and so, while credit unions in Northern Ireland are still regulated by the UK-wide FCA and their customers have recourse to the Financial Ombudsman Service, their rules are not set by the Westminster Government and neither the Growth Fund nor the Expansion Programme have worked with credit unions in Northern Ireland.
465 Community Development Finance Association, Just Finance: Fair and affordable finance for all (May 2014): [accessed 14 March 2017]