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Affordable credit: what can the UK learn from other countries?

Explore the concept of affordable credit and credit exclusion in the UK compared to other countries. Analyze the UK consumer credit market statistics, high-cost credit markets, and consumer attitudes towards financial products. Discover government consultations and potential reforms, including rate caps and total cost of credit regulations. Learn about state provisions and high-cost credit markets, with data from European Credit Research Institute and OFT reports.

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Affordable credit: what can the UK learn from other countries?

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  1. Affordable credit: what can the UK learn from other countries? Marie Burton, Consumer Focus Dr Chris Deeming, PFRC, Bristol

  2. 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

  3. UK context UK consumer credit market • €245.2 billion in 2008 • 16.2% 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)

  4. UK context • Sub-prime credit markets: ranking in terms of ‘development’ Source: OFT (2009)

  5. 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)

  6. UK context • Consumers’ options for borrowing if cannot get mainstream credit: • State provision • High-cost credit

  7. 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 2010 - Ended March 2011

  8. 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)

  9. 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

  10. UK context Consumer attitudes Payday loan users attitudes and views on financial products

  11. UK context Cost comparison of a £300 loan Cost of borrowing (Source: Making Ends Meet, forthcoming. Adapted from ‘Cost of Cash’ Consumer Focus Wales, 2009)

  12. 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

  13. UK context Options for reform • Consumer Focus commissioned PFRC to look at how other countries deal with this issue

  14. Consumer Focus t 020 7799 7900Fleetbank House, f 020 7799 7901Salisbury Square contact@consumerfocus.org.uk London www.consumerfocus.orgEC4Y 8JX

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