What are the Alternatives to High Cost Credit?
Principal Investigator: Victoria Boelman, Young Foundation
The objective of this research is to sketch out a clear, practical account of what would work as a viable competitive alternative to payday loans.
For a large swathe of the Welsh population on low incomes, the economic recovery could be marred by an historic overhang of debt. Overall UK consumer debt trebled in value from 1993 to 2013 reaching £158 billion, leaving many in poverty to face high debt repayments and chronic uncertainty as interest rates now start to rise. Nowhere are these risks sharper than in the case of payday loans. Despite offering worse economic terms than some alternative products, including some provided by credit unions, payday loan companies have been the decisive winner of the UK’s recent squeeze on household incomes. The staggering rise of extremely high-interest-rate debt threatens to shape the way many in poverty experience the economic recovery, reducing household spending power, increasing insecurity, and derailing anti-poverty strategies.
The research starts from the premise that product design considerations, and the overall attractiveness of alternative offers, are likely to be decisive if the rise of payday loans is to be curtailed. Getting product design right will require a richer and more detailed understanding of the user-experience of different forms of credit than we have today.
The study will, therefore, adopt a novel participative methodology that will give us a ‘borrowers-eye-view’, walking through the decisions made by low income borrowers and co-designing a viable alternative offer to payday loan-style products. We will:
- Conduct in-depth interviews with low income borrowers to evaluate how the experience of taking out a payday loan compares to alternative forms of credit;
- Carry out a series of participative workshops to co-design with low income borrowers an alternative, competitive and less harmful offer that would be a viable alternative to payday loans.
This is an intentionally practical project which seeks to have an impact on policy and practice. It has been designed to support the Welsh government’s objective of mitigating the effects of poverty and, in particular, its goal of increasing the use of credit unions as an alternative to more harmful forms of short-term credit. It will conclude with publications for both academic and non-academic audiences and a series of dissemination events to share findings with policymakers and delivery organisations.
The final report, Credit Where Credit’s Due, was published by the Young Foundation on 24th May 2016.