How the crisis of affordable credit is endangering the UK’s most vulnerable

One of the biggest issues faced by financially vulnerable people in the UK today is also one of the least discussed. Much of the public conversation in recent years has, justifiably, focused on inflation, stagnant wages and falling living standards. In these circumstances, access to affordable short-term borrowing can provide a crucial lifeline. Yet the availability of consumer credit is drastically worsening. This has tragic human consequences, as more people are forced into the arms of dangerous and illegal loan sharks.

We all know that people face unexpected costs and financial challenges. Boilers malfunction; family emergencies require travel at short notice; cars break down on the side of the road. For the 11 million working-age people in Britain with less than £1,000 in savings, short-term or emergency loans might be the only option to help them make ends meet.

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These challenges have only grown more severe as the cost of living crisis has unfolded. Research from Fair4All Finance found that 20.3 million people (almost half of the UK’s adult population) are living in financially vulnerable circumstances.

Unfortunately, even as the demand for affordable credit skyrockets, its availability is diminishing at an alarming rate. A study by ClearScore and EY found that the number of loans extended to customers in the UK with the lowest credit ratings has fallen by over 75% in the past five years.

The big banks just don’t think it is worth offering credit services to people with low credit scores or irregular employment histories. A number of the specialist consumer credit firms who catered for this demographic have either gone out of business or been effectively shut down by regulators – and often rightly so, given the predatory business models that many employed.

But this has left people high and dry. It is getting much more difficult for the financially vulnerable to access regulated money lenders from which they can safely borrow amounts that they can afford to repay.

As founder and CEO of Pockit, a financial services firm established to help vulnerable customers, I have seen for myself some of the devastating consequences of being shut out of affordable credit. Vicious loan sharks, who use intimidation and aggression to profit from vulnerable people’s desperation, are all too happy to exploit the situation. When people can’t access credit through safe and regulated means, they will turn to illegal sources.

One heartbreaking story that we recently heard from a customer illustrates this problem. She is a single mother who borrowed £1,000 from a loan shark to cover expenses over Christmas, after getting a leaflet through her door. The loan shark was aggressive and violent, extorting her into paying back £3,500 over four months.

She faced such an ordeal that she was sectioned. Her now 11-year-old son is still going through intense therapy to work through fears of threatening men kicking down the door to their family home. The loan shark, thankfully, has been jailed – but only after having been violent to multiple women. For fear of reprisals should she speak out, she has understandably asked for her identity to remain protected.

This devastating story is just one of many thousands playing out across the UK. It is clear that more must be done to support vulnerable people who can’t access credit, safeguarding them and their families from these criminals.

The financial services industry has a role to play. There are a range of services that firms can offer to help support vulnerable customers, but which too few provide. These range from income advance products, whereby customers can get a low-cost advance on their paycheck, to credit builder products designed to help people safely and affordably build their credit scores.

But firms can’t do this alone. Financial exclusion is a wider societal issue that needs serious work from the government to address, encompassing financial education and engagement with high-street banks and smaller fintechs. I urge the new government to move forward with its promised Financial Inclusion Strategy, to which the Labour Party committed at the start of the year, but which was conspicuously absent from both its election manifesto and the King’s Speech.

It is an urgent priority that the government tackles the problem of financial exclusion, ensuring that vulnerable people can get access to affordable and safe credit – at a time when demand is soaring and supply rapidly decreasing.

The human costs of doing nothing are otherwise far too high.

Virraj Jatania is founder and CEO of Pockit.

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