LONDON (Reuters) – When a payroll problem left Natalie Gallagher so cash-strapped this month that she couldn’t afford her bus ticket to work, she turned to her regular lender Amigo for an emergency complementary loan.
But she was unlucky. Like many lenders upon which thousands of high-risk borrowers in Britain depend, Amigo had tightened its criteria for distributing money in the wake of the coronavirus.
“They approved my top-up, but 10 minutes later I got a text saying the reason for the top-up was not what they were doing right now,” she said. “Amigo was my only real option. “
While traditional banks have been forced to give customers mortgage payment holidays and discounted three-month overdrafts, less support has been offered to so-called at-risk borrowers who often need extra cash just to stay on. flow.
Some lenders have closed their doors to new customers while others have been unable to extend cash lifelines to borrowers since foreclosure restrictions banned weekly visits by home loan officers at their home.
According to the Money Advice Service, around 17 million people in Britain have less than £ 100 in savings to draw on in a crisis and those working in some of the industries worst hit by the pandemic are particularly vulnerable.
More than 6 million workers in retail, travel, hospitality and beauty industries are 25% more likely than people in other industries to have no money to fall back on, said the Center for Social Justice think tank last month.
“At the end of the day, these people have nowhere to go,” said Roger Gewolb, founder of the FairMoney loan comparison site. “The consumer credit market is at a standstill.
Gallagher, 29, of Manchester, in the north of England, said that while past debts with payday lenders such as Wonga damaged her credit rating, she was surprised to be dismissed this month.
“I would understand if I wanted a new loan or if I had missed payments, but I never missed a payment,” said Gallagher, who works with offenders.
An Amigo spokesperson said Gallagher’s request was denied because the subject of the loan was not covered by his current loan criteria, which have been tightened since the pandemic.
“An Amigo loan is for thoughtful purchases, rather than current expenses; that is why the minimum loan we offer is 1,000 pounds ($ 1,225).
While some low-income borrowers struggle to budget, others have been blacklisted by the traditional financial system and rely on alternative credit providers such as guarantors or home lenders to join the two. ends.
Credit score provider ClearScore, which shows consumers what offers are available based on their circumstances, said subprime borrowers could on average only access 0.17 of loans in a market snapshot on May 16. . On January 1, the average was 1.
As of the same date in May, blue chip borrowers found an average of 1.79 loan available, while middle borrowers, or non-preferred borrowers, found an average of 0.81 loan products.
Britain’s largest venture lender, Provident Financial Group, has tightened underwriting criteria while rival Non-Standard Finance now only lends to key workers such as doctors, nurses, supermarket workers and delivery drivers.
The subprime credit market had already contracted in recent years after tighter regulations and interest rate caps prompted large numbers of payday lenders to close their doors.
Without financial safety nets and affordable access to credit, millions of struggling Britons turned to the government for social assistance benefits, with 2.5 million applications for universal credit benefits between March 16 and May 5.
Nearly 11 million people have missed or expect to miss a bill that could lead to the execution of a bailiff and even deportation, according to a study by the Citizens Advice Bureau.
Debt charities say the absence of government programs to help Britons in debt at a time when subprime lenders are pulling out of the market has been keenly felt.
“High-cost short-term credit can seem like a short-term financial stopgap, but all too often it can become an expensive repeat trap,” said Sue Anderson of the debt charity StepChange.
“It is unlikely to represent a lasting solution to people’s financial pressures, when a well-designed interest-free loan program could potentially make a useful contribution,” she said.
Plans to offer interest-free loans to some distressed borrowers – a policy proposed by former finance minister Philip Hammond in 2018 – have yet to come to fruition.
A spokesperson for the Treasury said it remains committed to working with stakeholders to pilot a program to support the most vulnerable and sustainable over the longer term.
Lenders are prohibited from selling credit to anyone who doesn’t think they can repay it, which will likely exclude many people who have lost their jobs so far during the pandemic.
This means that those employed in hard-hit industries, or those who have seen their household income decline while on leave, find an increasingly narrow range of options among sub-prime lenders.
“I imagine 35% of the population is now in that non-prime or subprime position and there are more to come,” said Gewolb of FairMoney. “All they can do is find a surety or have a conversation with a guy who has friends with baseball bats and no consumer credit license.”
England’s illegal money lending team, which investigates and prosecutes loan sharks, said it was launching a live chat on its website on May 26 to offer victims another safe way to seek advice and support .
“These nasty individuals are nothing but misery for those who borrow money from them,” said team leader Tony Quigley.
Based on data from 2018 and 2019, the organization said it took an average of 2.75 years for a person targeted by predatory lenders to engage with authorities, suggesting that a spike in activity loan sharks may not be visible until 2023.
Analysts say it’s no surprise that subprime lenders are acting with caution. Even under favorable market conditions, firms serving risky clients typically absorb higher defaults than banks that focus on better quality borrowers.
In 2019, 13.6% of loans made by Vanquis, Provident’s subprime credit card business, went badly, while the so-called depreciation rate for its home loans was 39%.
But for loans from the Royal Bank of Scotland, for example, which tends to lend to people with better credit ratings and focuses on mortgages, the rate was only 0.21%.
With little consensus on the outlook for the UK economy, few traditional lenders say they are ready to help borrowers who were below the mark before the pandemic.
David Duffy, chief executive of Virgin Money, said the bank was prioritizing existing customers and had not considered changing its lending criteria to offer credit to subprime borrowers.
A spokesperson for UK Finance banking organization said: “Lenders work hard to ensure that the right balance is to help clients budget effectively and meet their payment needs while lending in a good way. responsible and ensuring an affordable price in the long term. “
Others have been more direct about a subprime laundering.
“It’s almost certain that people won’t be able to get credit,” said a senior banking executive. “Clearly, if you’re in that category, then you’re in a much more difficult scenario. “