Furthermore, Stepchange have found that 2.1 million people spent the whole of 2016 in a permanent overdraft. The FCA’s own Feedback Statement, highlighted the fact that unarranged overdrafts fees can cost ten times more than a payday loan.
Other forms of credit are much more pervasive and equally pernicious.įor example, according to the FCA, 52 million people in the UK have a personal current account and 37% of this group use an arranged overdraft, with 25% (approximately 10 million people) using an unarranged overdraft each year. But we should not be focusing solely on so-called ‘sub prime’ credit. For example, the price cap which currently applies to payday lending (and has led to a reduction in such lending since its introduction in 2015) should be extended to other forms of credit such as rent-to-own products. It is therefore crucial for government to continue to reform this type of credit to reduce its negative consequences. Some people struggle to resist the widely-advertised lure of quick, easy money and then find themselves in a vicious downward spiral of debt. Of course, not everyone who uses high cost credit is borrowing to pay for essentials as a result of austerity. We need a new, more ethical foundation for our economy as the IPPR have recently argued and austerity must end. Our economy is built on private debt rather than public investment with devastating consequences for many.
And the number of individual insolvencies increased to nearly 100,000 in 2017. The University of Birmingham’s latest financial inclusion monitoring report (and related infographics) highlights the fact that unsecured credit is still increasing, such that almost half of the population were in debt in this way in 2014-16. Latest financial inclusion report highlights unsecured credit is rising Poverty is increasing among all groups including families with children (in and out of work) and pensioners. Austerity policies have been in place since 2010 but are beginning to bite ever more deeply into people’s purses and wallets as basic benefits increasingly fail to cover the cost of the essentials people need.
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Austerity policies such as Universal Credit, the benefits freeze and other tax/benefit changes are a key driver of the demand for high cost credit by causing poverty and insecurity both in and out of work. The first action we need is to end austerity. The collapse of Wonga in August 2018 may be celebrated by many and mourned by few but, as Michael Sheen has reminded us, there are many other types of high cost credit still available in the marketplace so further action is needed if we want a post-Wonga world to look significantly different from what went before.
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