Financial Services: Contextual Information

Summary

Regardless of individual characteristics or employment status, research demonstrates a growing reliance upon standard and non-standard credit throughout the UK.

This section provides an insight into the use of financial services throughout the UK. In particular, it is focused upon non-standard forms of credit and the consequences of debt.

To provide further context, this section should be viewed in conjunction with:

Debt can be considered as both a precursor to, and consequence of, poverty.  It should therefore be viewed within the broader contextual environment of:

 

Key Facts and Figures: Glasgow

Research commissioned by Glasgow City Council suggests that annually, 100,000 Glaswegians borrow £57 million through payday lenders, home credit, pawnbrokers and other forms of non-standard credit.

Source: Glasgow City Council. 2013. Payday Lending Sounding Board

 

The Office of Fair Trading estimates that 8.2 million loans were issued (through retail and online lenders) in 2011/2012, at a total amount of £2.2 billion.

If Glasgow's adult population borrowed an average share of these transactions, it would equate to £21.3 million through 81,600 individual loans.

The Competition Commission and the Office of Fair Trading have highlighted the continued reliance upon home credit and payday lending amongst those within the bottom income deciles. 

Source: Glasgow City Council. 2013. Payday Lending Sounding Board

 

Research from the 2009/2010 Scottish Household Survey suggests Glasgow has the lowest levels of savings across all 32 Scottish Authorities.

Source: Scottish Government. 2010. Scottish Household Survey.

 

Efforts have been made to mitigate the impact of high interest credit and lending schemes. An example of best practice is evident within Glasgow City Council’s Credit Union Facility.

Containing 140,000 members, this council run initiative offers affordable credit to people from a range of economic backgrounds.

Recently, the council have also introduced a financial education scheme for young people. Every new secondary school pupil will have a credit union account set up in their name, along with an initial £10 deposit.

Source: Glasgow City Council. 2013. Payday Lending Sounding Board

 

The Govan Law Centre suggests payday lenders, on average, charge between £25 and £42 to borrow £100 for 30 days.  However, administration charges and roll-over costs can increase this fee.  Estimates suggest that 3,000 and 5,000 APR is charged on most pay day loans.

Source: Govan Law Centre. 2013. Scottish Parliamentary Briefing on Payday Lending in Scotland.

 

Key facts and Figures: United Kingdom

The Office of Fair Trading estimates that in 2011/2012, within the UK:

  • 8.2 million loans, equating to £2.2 billion were issued through retail and online lenders.
  • The average loan is between £265 and £270, borrowed over 30 days.
  • The three largest lenders are responsible for 55% of the market (by turnover) and 57% loan value. 

    Source: Office of Fair Trading. 2013. Payday Lending. Compliance Report Review.

     

    The Payday Loan Sector

    The current economic climate appears to be underpinning the growth of the payday loan sector.  Payday loan companies are posting growing profits on an annual basis.

    For instance, Wonga, in their most recent annual report, provided the following figures for 2012:

    • More than 1 million customers, up 61% from 2011
    • 4 million loans provided, up 54% since 2011
    • £1.2 billion lent, up 68% since 2011
    • Revenue of £309.3 million, up 67% since 2011
    • Net profit rose to £62.5m, up 36% since 2011 

      Source: Wonga Group Annual Report: 2012 Highlights

       

      StepChange, a debt focused charity provide a further indication of the levels of debt faced by families within the UK.  Their mixed-method research, including a survey of 6442 adults and families with dependent children, suggests:

      • 1.4 million families in the UK are currently dealing with problem debt.
      • Families are behind on payments of £4.8 billion.
      • 2.9 million families with dependent children have struggled to pay bills or credit commitments in the last 12 months.
      • 10% of survey participants had taken out credit to pay for food for their children.
      • 18% had taken out credit for clothing and 6% for heating.
      • 6 out of 10 families worry about the level of debt they have.
      • 73% of children whose parents were in arrears noticed that their parents found it hard to pay for their social activities.
      • This is in comparison to 37% of children, whose parents weren’t in arrears.  

        Source: Step Change. 2013. The Debt Trap. Exposing the Impact of Problem Debt on Children

         

        StepChange further reinforce the impact of debt amongst the UK population.  They highlight the steep increase of people using their advisory service:

        • In 2013, 507,863 people contacted the charity, including a 29% increase in telephone contact and 50% increase in online contact.
        • The need for advice was driven predominantly by unemployment (23%) and reduced income due to loss of hours (16%).
        • Over half of clients seeking advice worked, 31% full time.
        • Arrears on household bills have increased dramatically, with council tax increasing from less than 10% in 2009, to over 25% in 2013.
        • 67,000 people were given advice on payday loans, double the total of 2012

        Source: Step Change. 2013. Statistic Yearbook Findings