A report from the Royal Society for Public Health (RSPH) released today highlights the strong link between high-cost credit and people’s physical and mental health and wellbeing.
It comes after Provident Financial, the owner of the credit card lender Vanquis, was fined £2 million and ordered to compensate customers with a sum of £169 million for selling a misleading product that increased customer’s indebtedness.
It is easy to discount people in debt as being careless, overspending, irresponsible. Yet it can happen to all of us, far too easily. Here’s how I know.
We were late in paying a bill we did not know existed
It was a sunny day in Malaga. We had just started our relaxing holiday in Spain, when suddenly we got a threatening call from a gas supplier. The man on the other side of the line informed us that we were late in paying a bill we did not know existed, in a flat we no longer lived in, and must pay an immediate unexpected charge of £300. Apparently, an incorrect gas meter reading by the company had led to this unpleasant eventuality. Fortunately, we found the money to pay, but for the 40 per cent of the working age population in the UK, who have less than £100 in savings, this would not be an option. And turning to high-cost credit could cost you an annual rate of up to 1,500 per cent.
It is, therefore, alarming that many of us are frequently facing financial surprises. With official figures released at the end of February showing that as many as 17,000 companies entered insolvency last year, it could be argued that change is the only constant. When faced with with unexpected changes in income and expenses, an estimated nine million Britons are turning towards using credit to pay for their daily expenses, such as food, petrol, electricity meters, and household bills. 8.3 million people in the UK indicated that keeping up with their bills and credit commitments is a ‘heavy burden’.
The high-cost credit market
But where would one turn without an overdraft or an acquaintance with extra cash, and which organisations are offering solutions to such customers? The high-cost credit market in the UK includes products such as payday loans, home credit and rent-to-buy retail credit – some of which seem appealing at first sight but may later turn into a trap. In 2015, the booming market was estimated at £5 billion, serving 5 million customers, amongst which are the most vulnerable and financially-excluded people in society. A recent report by ‘Citizens’ Advice’, a charity committed to advice people with problems concerningmoney, law, consumer rights and more, pointed out that people with insecure incomes are five times more likely to turn to high-cost credit.