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    Could our love of quick credit come back to haunt us?

    24 July 2019

    Two recent reports serve as a wakeup call to the debt trap that is impacting a wide group of consumers. On Tuesday, the think tank Demos released ‘The Good Credit Index’ highlighting how millions of consumers are now living in credit deserts, where areas of high credit need overlap with low affordable credit provision. While it’s well documented that the poorest in society pay the most for their credit, the Demos research serves as a timely reminder that for too many consumers, getting access to fair credit can be an uphill battle.

    With mounting levels of consumer debt and the ever-present risk of an economic downturn, a perfect storm is brewing. But this time around, the full force of the storm looks set to sweep away the predatory lenders that are fuelling the consumer credit boom.

    And it’s not just poorer consumers that are struggling. This week also saw research from Hastee Pay which suggests that trendy ‘buy now, pay later’ credit products are having the greatest negative impact on the lives of customers earning one hundred thousand pounds or more per annum. Lured by the promise of buying now, but not in fact able to pay later, these products are changing the way consumers think about credit and prove that affluent customers aren’t immune from the clutches of money lenders hungry to grab a bigger slice of the consumer credit boom.

    While our use of credit is increasing, there can at time be an uneasiness about it, particularly around high cost options. In the words of one customer “although the service I received was nothing short of excellent, I wouldn’t recommend anybody to get a high APR loan due to the risks involved.”

    But for those up to their eyeballs in debt, there’s one word that really matters: affordability.

    Affordability is the responsibility all lenders have to ensure that the loans they make are affordable, be it mortgages, car finance or payday loans. If they’re not, customers have the right to complain, which can, and does, lead to refunds. Affordability looks set to be the tool that holds the feet, and wallets, of predatory lenders to the fire.

    Part of the challenge is that there’s no exact science to determine what is an affordable loan – after all the circumstances of customers can change. And just last week the Financial Conduct Authority (FCA), the UK’s financial services regulator, revealed plans to launch a review into credit reference agencies, upon whom lenders rely on to help determine affordability. In the words of the FCA, “poor quality credit information used by lenders could lead to harm if a consumer is ‘wrongly’ declined credit or is offered credit that is unaffordable.”

    With the deadline for submitting new PPI claims less than two months away, claims management companies are already betting big that affordability is the dam that will soon burst.

    But you don’t need to use a claims management firm to make a claim. Complaining directly to a lender and taking your complaint to the Financial Ombudsman Service if you’re not happy with their response is straightforward. The not for profit Debt Hacker also provides a free to use tool designed to help payday loan customers make affordability claims.

    And it’s not just affordability that lenders will have to contend with. I’d wager that they’ll be an even bigger avalanche of claims around mistreating vulnerable, or potentially vulnerable customers over the next few years, which will hit payday lenders particularly hard.

    All of us are living increasingly credit dependent lives. The rise of gig economy style working patterns will only make the challenge of financial wellbeing tougher, particularly for younger consumers.  But rather than deliver the kind of financial products that help us live better lives, too many lenders are showing scant regard for our financial wellbeing. After all, watching us descend deeper into the credit trap is far too profitable.

    Michael Fotis is the Founder of Smart Money People, a financial services review and research platform.