Gone unseen in the current lockdown is the fact that unsecured subprime lending has almost ground to a halt. Forcing some to make difficult choices.
On 15 March, Non-Bank UK subprime lenders started to withdraw from the market, by 21 March all but one had ceased lending to new customers. The single lender that remained had switched to only accepting customers with exemplary credit records.
“I’ve been in the business since 2006, and I have never seen credit providers withdraw all their products as I have seen in the last month,” said Martin Bishop from QuickLoans.co.uk.
Short term unsecured loans have historically been used by people to get through unforeseen emergencies. In this national emergency, lenders have withdrawn the availability of their products to new customers. Some of the most vulnerable in society no longer have anywhere safe to turn. Critics of the industry who once vilified the likes of Wonga, are now becoming worried by their absence.
According to QuickLoans.co.uk, their reports show that in the last month [20 March to 19 April] only one in 130 applications from new customers seeking credit been accepted by a lender. In January this year, one in eight applications were being accepted.
“During my daily discussions with lenders, I see a mixture of different issues come to the surface during this crisis,” Bishop said.
“There are three main issues that concern lenders. The first is that customers may not be able to make repayments on time due to their future income no longer being as assured. The second is that The FCA is making public statements that lenders must allow borrowers a three month payment holiday if it is requested.
“In effect, it means that lenders would be offering three months interest-free loans to new applicants. The third is that lenders believe that customers are starting to assume that they are entitled to certain things they hear online (such as payment holidays).
“It may lead them to lodge complaints with the Financial Ombudsman Service when they don’t materialise. In essence, this costs lenders an immediate £650 regardless of fault.”
Most of the focus has been on the lack of bank lending to businesses. But a problem equally as serious is brewing at the subprime level. If lenders don’t return to the market soon, borrowers who rely on short term credit will be forced to make difficult decisions.
Some of these decisions include using illegal money lenders (loan sharks), using secured lending in the form of Pawn Shops, or borrowing from friends and family. Several applicants are telling us that they do not have the money to get them back to work when restrictions are eased.
Lenders have told QuickLoans.co.uk that they have no firm date to return, even if the lockdown is lifted nationally within the next week. Due to the FCA’s request for a three month payment holiday for borrowers, it may not be until after this 90 period has passed that lenders feel safe to return.
Discussions between Subprime lenders and The Financial Conduct Authority are due to take place next week. As it stands, without concessions from The FCA, lenders will not return.