THE UK financial regulator is throwing its weight behind growing the mid-cost segment of the consumer lending market, after a senior executive warned that cheaper providers of debt are at risk of being “overwhelmed by demand”.
Christopher Woolard (pictured), executive director of strategy and competition at the Financial Conduct Authority (FCA), said that if the FCA could instantly fix regulatory and information problems to encourage Britons to switch from high-cost loans to mid-cost alternatives, “the fact is that existing providers would be overwhelmed by demand”.
In the speech at the Responsible Finance Annual Conference in Glasgow on Tuesday, he said: “A customer with a good credit score might pay around £280 to borrow £4,000 for a year, while it could cost a riskier customer over £1,500. But where are the missing rungs on the ladder? What are the options for mid-cost credit?”
Mid-cost lenders provided £22m of loans to more than 55,000 individuals in 2016 to 2017, according to Woolard, a fraction of the £1.9bn lent by high-cost lenders in 2016.
“We have to look at business models and the supply of capital in this market,” said Woolard. “What we hope to see is more models emerge in this market that can provide commercially sustainable, mid-cost lending.”
Woolard highlighted Stockton-on-Tees based consumer lender Five Lamps, which provides loans alongside advice on debt, as a potential model for new credit providers.
“If you look at firms like Five Lamps, they couple lending with money advice – which is about long term outcomes, not just lending,” he said. “Commercially, it means lower default rates.
“Indeed, in the wider thinking and partnership needed here, we would see debt advice as an important part of the picture.”