Payday Futures: Sub-Prime Credit Markets In Transition?

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1 Payday Futures: Sub-Prime Credit Markets In Transition? Carl Packman, Research and Good Practice Manager, Toynbee Hall Dr Lindsey Appleyard, Research Fellow, Centre for Business in Society (CBiS)

2 Partnership with Centre for Business in Society Impact of regulation on the HCSTC market Specifically the impact of the cap on the cost of credit The impact on a) consumers, b) other lenders

3 Project impact - Engage with key debates around the regulatory impact of responsible lending and borrowing; - Highlight the lived-experience of those that still use AND are now excluded ( declined applicants ) from accessing HCSTC and how this is reshaping credit markets; - Disseminate the project as broadly as possible using our online networks, and; - Use Twitter to encourage discussion using the hashtag #Paydayfutures

4 Twitter

5 Timing Many lenders have their full licenses (though some are still waiting) FCA consultation (closed 15 February) Creation of new partnerships Warning sign of financial harm in products other than payday loans

6 Contemporary questions on the payday lending industry

7 Is the cap set at the right amount? Proportion of loans on which consumers were charged extra fees, such as late payment fees, on top of contractual interest, has halved, from 16% in 2013 to 8% in Average loan size increased by 11 in recent years, from 245 in 2013 to 256 in Someone borrowing 200 for 30 days would pay 36 less under the current average market prices than they would have done in Source: SMF/CFA (2016): uk.co.uk/wp-content/uploads/2016/11/smf- Report-AKT10796.pdf

8 Has the payday loan customer changed? Consumer Focus (2010): Young adult under 35 (55%), single, without children, outside South East and London, with the North of England and Scotland, 67% have incomes below 25,000 (21%: 15-24,999k; 46%: under 15,499) Today: Male, employed ( 20-25k), 25-39, have children One in 16 (6%) customers said they would have used an unlicensed lender who is not a family member or a friend if they had not been able to access a short-term loan. Source: SMF/CFA (2016): uk.co.uk/wp-content/uploads/2016/11/smf- Report-AKT10796.pdf

9 Has the payday loan customer changed? One in 16 (6%) customers said they would have used an unlicensed lender who is not a family member or a friend if they had not been able to access a short-term loan. Source: SMF/CFA (2016): uk.co.uk/wp-content/uploads/2016/11/smf- Report-AKT10796.pdf

10 Regulatory uniformity? Consumer group Which? found that some bank customers who borrow 100 for 30 days through an unarranged overdraft have to pay 180 in charges, much more than the maximum 24 on a payday loan for a similar period. Source: Daily Mirror (2017):

11 Regulation-led cost changes and their impact on access? Cost of a 100 payday loan in UK for 30 days: 24 Australia: $24 per $100 (equiv: 14 per 60) Ontario: $21 per $100 (equiv: 12 per 60) British Columbia: $17 (equiv: 10 per 60) Alberta: $15 (equiv: 9 per 60)

12 Are payday lenders innovating? Instalment/90 day loan product: innovation or the only choice for industry? Impact of FinTech on high cost credit? Debt repayment behaviour and financial capability.

13 Snapshot insight What have we learnt from payday regulation? What more is needed? Is High Cost Credit sure of its target consumer type? Is competition reducing the cost of credit and the numbers multiple borrowing? What is the long term impact of having a payday loan on a credit file? Declined applicants?

14 How we will answer these questions?

15 Impact statement The key aim is to explore the impact of the regulatory reforms of HCSTC on lender and borrowers and how this is reshaping credit market geographies for consumers, including identifying any newly opened market gaps and behavioural changes. It will provide a substantial evidence base on the impact of reforms, including expected and unexpected outcomes, to the stakeholders (regulators, policymakers, HCSTC lenders, alternative community finance lenders, debt advice charities, mainstream finance, housing associations, and so on) who have championed and implemented the reforms.

16 Project activities Steering group wider remote network Review of the evidence home and abroad Survey of organisations HCSTC/CUs/other lenders Consumer interviews 40 in total (focus on excluded) An impact assessment on HCSTC customers Roadmap for future affordable finance.

17 Consumer impact Mixed methods approach: not solely a statistical view, but also an understanding of the lived experience of losing access to high cost credit What is the personal impact of payday loan rejection: arrears, other forms of credit (affordable or unaffordable), credit use halt, spending cutbacks? Typology of those for whom a payday loan is unaffordable/inappropriate and a view of the solutions (which groups benefit/for whom is it detrimental?).

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