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 €245.2 billion in % 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 Highly developed Somewhat developed Undeveloped Source: OFT (2009)

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 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 Form of FinanceQuick to getEasy to access Easy to understand Cheap Trust myself/gives me control Want to help me Payday loan  Credit card  Overdraft  Personal loan  Credit Union loan  Store cards Car manufacturer finance  Pawnbrokers  Loan from friends or family Key:  Strongly Agree Strongly disagree Payday loan users attitudes and views on financial products

UK context Credit provider Repayment period APR Amount repaid Typical Credit Union (at least 8 weeks saving required beforehand) 52 weeks12.7%£ Credit Unions (offering instant loans) 26.6% APR, paid over 52 weeks 52 weeks26.6%£ Community Development Financial Institution (offering instant loans) 50 weeks47.5%£ Typical home credit company (home collection, APR 272.2%) 52 weeks272.2%£546 Difference between the cheapest and most expensive £ Cost comparison of a £300 loan Cost of borrowing (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 t Fleetbank House, f Salisbury Square London EC4Y 8JX