Context

There have been substantial changes in the UK credit landscape and regulatory environment in the past decade. This has helped to generate positive changes in lending practices, but for many lower-income households access to credit has become more difficult.

Fair4All Finance is a not-for-profit organisation which aims to ‘transform the system – through investment, research and partnerships – so that everyone has access to the right products and services, whenever they need them’.

In 2023, Fair4All Finance helped produce a report which demonstrated the pervasiveness and impacts of the illegal lending market in people’s lives. They committed to building on these findings with new empirical research and recommendations for action by industry, regulators and community finance investors.

The study

The objectives of the study were to:

• estimate the level of illegal money lending in Great Britain
• understand how consumer access to credit had been shaped by market and regulator developments
• understand how the online and community-based illegal lending markets were changing.

Two surveys of people’s personal and household finances were undertaken in 2023 by Ipsos UK on behalf of Fair4All Finance. The first had a sample of 2,547 adults, and the second had a sample of 1,859 adults, aged 18-75 in Great Britain.

Both surveys used quota sampling from an online panel, and the data were weighted to known representative proportions along several demographic and socio-economic dimensions. Further weighting in the first sample adjusted for product-holding booster samples.

The report also describes drawing on qualitative analysis from interviews with lenders, aggregators and intermediaries, and draws heavily on the wider literature.

Key findings

The UK credit market

• Lower-income households were more likely to make credit applications for essentials or when in financial distress, and less likely to make applications for discretionary spending. For example:
  • 23% with incomes below £30,000 vs 17% with incomes over £50,000 had borrowed for ‘everyday essentials’
  • 9% with incomes below £15,000 and 10% with incomes between £15,000 and £30,000 vs 17% with incomes over £50,000 had borrowed for holidays.
• Among people who had applied for credit in the last three years:
  • 64% of those with incomes below £15,000 were accepted vs 83% of those with incomes above £50,000
  • 66% of social renters were accepted vs 85% of homeowners.
• Households with incomes below £15,000 who had been declined, or had assumed they would be, were more likely to have cut back on essential expenditure. For example:
  • 38% reported having cut back on food vs 23% of all households
  • 43% had cut back on utilities, such as heating vs 24%
  • 29% had missed a bill payment vs 17%.

Filling the credit vacuum

• 22% of all adults had borrowed from friends or family in the last 12 months, with a minority describing ‘friends’ as charging interest or penalties for late payment.
• 19% of credit applications were to Buy Now Pay Later.

Illegal lending in Britain

• 15% of all adults said they were aware of an unlicensed lender operating locally.
• 10% and 7% were aware that someone in their social circle and household, respectively, had used one.
• The credit-declined had significantly worse experiences of financial crime and harms than those who were accepted. For example:
  • 20% vs 6% experienced higher charges/costs than initially advised
  • 14% vs 4% had unexpected withdrawals from their account
  • 21% vs 3% had paid a fee to arrange a loan but not got the loan.

Points to consider

Methodological strengths or limitations

• The authors note that the use of quota sampling from a panel survey makes scaling up to population estimates (given in the report) not strictly appropriate, therefore these should be interpreted with caution.
• The survey data analysis is descriptive and there is no indication that statistical significance tested was undertaken for the report. As such, small reported differences should be interpreted with caution.
• The authors note that careful question wording in the survey may still not have elicited an accurate estimate of levels of illegal lending.
• The qualitative interviews referred to are not described in detail. It is not clear if these were part of the current study design or previous research and analysis provided for context.

Applicability

• The findings should be of interest to financial services providers, policymakers and any organisation which supports or advocates for people at risk of borrowing from illegal lenders.

Relevance

• The findings are relevant given the changing market and regulatory landscape, and a history of active illegal lending markets, within the UK.