Consumer credit is an important part of UK financial services and the UK economy, helping people smooth their income and providing them with greater flexibility over their spending. However, we know that many millions of people across the UK get into problems paying back debt, overstretching themselves and suffering both financial and non-financial detriment.
To understand more about the experiences of consumers most at risk of unmanageable debt, we have conducted primary research looking at the attitudes towards, and use of, credit for people on the lowest incomes.
What did we look at?
Our research identifies three distinct borrower groups – survival borrowers, lifestyle borrowers, and reluctant borrowers – and explores how these groups use credit and the reasons for doing so. Our research also shows how debts can become unmanageable, and the strategies people use to cope with spiralling debts, showing how unmanageable debt triggers both financial detriment and affects health and wellbeing.
While many of the people we interviewed had low awareness of the help and support available to them, debt advice is effective in helping people get out of unmanageable debt. So helping people get the right advice and solution they need, before debt gets out of control, is vital. As we take over the regulation of this sector, we welcome a broader debate with stakeholders to encourage more people to get access to good quality advice earlier, before they reach crisis point.
Please note three errors in referencing sources used in this document and two other typographical errors. We have now also reflected these changes in the document.
Page 12 – The sentence “Figure 4 shows that total debt solutions have increased by almost 40% since 2007” should have stated that “Research by Zero-credit (data in figure 4) shows that total new debt solutions starting each year have increased by almost 40% since 2007”. This reference should also have been cited as ‘Debt Resolution in the UK’, Zero-credit research and report commissioned by The Debt Resolution Forum, 2012.
Page 13 – Figure 4 – the footnote references “’Debt Resolution in the UK’, Debt Resolution Foundation, 2012”. The footnote should have referenced ‘Debt Resolution in the UK’, Zero-credit research and report commissioned by The Debt Resolution Forum, 2012.
Page 34 – The sentence “The number of new DMPs increased from 80,000 to over 160,000 in 2011” should have read “Research by Zero-credit shows that the number of new DMPs increased from over 80,000 in 2007 to over 160,000 in 2011”. This citation should also have been referenced as being sourced from ‘Debt Resolution in the UK’, Zero-credit research and report commissioned by The Debt Resolution Forum, 2012.
This work will help us as we engage in discussions with stakeholders, including firms, about consumer outcomes for this market. This includes the work we have already announced in our business plan on tackling risks in high-cost short-term credit, addressing issues with credit cards, overdrafts, and logbook lending, improving financial promotions and improving debt management.
We want firms to look at our findings and consider if they are treating customers in vulnerable circumstances fairly.