Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall

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Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Payday Denied:
   Exploring the lived experience of
    declined payday loan applicants
Dr Lindsey Appleyard, Carl Packman, Jordon Lazell
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Fulfilling Work
  Research
    Payday Denied                     2018

Carnegie UK Trust
The Carnegie UK Trust works to improve the lives of people throughout the UK and Ireland, by changing
minds through influencing policy, and by changing lives through innovative practice and partnership work.
The Carnegie UK Trust was established by Scots-American philanthropist Andrew Carnegie in 1913.

Barrow Cadbury Trust
The Barrow Cadbury Trust is an independent, charitable foundation committed to bringing about socially just
change. Its mission is to use all its assets, especially its money, to work with others to bring about structural
change for a more just and equal society. The Trust was founded in 1920, by Barrow Cadbury, grandson of John
Cadbury, the founder of the family-run Cadbury chocolate, and his wife Geraldine Southall.

The Centre for Business in Society (CBiS), Coventry University
The Centre for Business in Society (CBiS) is the principal research centre within the Faculty of Business and
Law at Coventry University. Through understanding and interrogating the impact of organisations’ activities,
behaviours and policies, CBiS’s research promotes responsibility and inclusivity, seeking to change behaviours
in order to achieve better outcomes for economies and societies. To find out more please visit:
https://www.coventry.ac.uk/research/areas-of-research/business-in-society/

Toynbee Hall
Toynbee Hall, founded in 1884, is a community organisation that pioneers ways to reduce poverty and inequality.
Based in the East End of London, we provide free advice and support services which are all geared towards tackling
social injustice and improving financial health. Our research looks at communities and groups suffering from
financial exclusion, helping us to pilot new ways to deliver financial inclusion services and share our learning with
partners and policy makers.

Acknowledgements
We are very grateful to Barrow Cadbury Trust and Carnegie UK Trust for funding this research. We would like to
thank Clare Payne and Diana Ruthven at Barrow Cadbury and Niall Alexander and Douglas White at Carnegie UK
Trust for their feedback, editing, and support through the various iterations of the report. We would also like to
thank Dr Hussan Aslam for his research assistance, all the postgraduates that provided research support and our
project steering group. Finally, we would like to thank all the participants for sharing their experience with us.

  The text of this work is licensed under
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Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Payday Denied   1

Contents
Foreword                                                                             2
Executive Summary                                                                    4
Recommendations                                                                      5

1. Introduction                                                                      7
2. The payday lending market and consumer debt post-crash                            8
2.1 Context                                                                          8
2.2 Pre-regulation of HCSTC                                                          8
2.3 Key changes in the debate around high-cost credit: a chronological review      10
2.4 Post-regulation of HCSTC                                                       13
2.5 Declined payday applicants                                                     16

3. Analysis                                                                        17
3.1 Research participants                                                          17
3.2 Declined applicant actions                                                     19
3.3 Access to credit: From a different payday lender                               21
3.4 Access to credit: Irresponsible lending and borrowing                          23
3.5 Access to credit: borrowing from family and friends                            24
3.6 Access to credit: Use of family and friends to access formal credit            26
3.7 No access to credit: went without                                              27
3.8 No access to credit: cutbacks and budgeting                                    27
3.9 Financial capability and confidence                                            28
3.10 The role of time and constrained choice                                       30

4. Conclusion                                                                      31
5. Recommendations                                                                 33
Appendix 1: Glossary of terms                                                      35
Appendix 2: Methodology                                                            36
Endnotes                                                                           38
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
2   Payday Denied

       Foreword
                                                             families and communities. Debt is a part of
                                                             everyday life and access to affordable credit
                                                             an essential part of smoothing budgets and
                                                             responding to financial shocks.

                                                             The high-cost short-term credit (HCSTC) market
                                                             has seen very significant and welcome changes
       Martyn Evans        Sara Llewellin                    since the FCA took over the regulatory powers in
                                                             2014 and a total cap on credit was introduced in
                                                             2015. The shift in borrower numbers (downwards)
       This research has been commissioned by the            and borrower incomes (upwards) has resulted in
       Carnegie UK and the Barrow Cadbury Trusts. The        better outcomes for consumers, and withdrawal,
       Carnegie UK Trust vision for affordable credit        and more recently, the demise of many firms
       is outlined in its ’Gateway to Affordable Credit’     operating in the market.
       report. It sets out an ambition that everyone,
       wherever they live, should have access to more        Nevertheless, the demand for unsecured consumer
       affordable forms of credit, which reduce the cost     credit in the UK remains at a historical high at £215
       of borrowing for those outside of the mainstream,     billion (September 2018, Bank of England). If the
       support financial inclusion and promote equality      supply of harmful credit is constrained then that
       and fairness.                                         brings clear, positive benefits, but it also raises a
                                                             fundamental question – what happens next? It is
       In recent years, the Barrow Cadbury Trust has         unrealistic to think that the demand for credit which
       worked with partners including the Centre for         fuelled the rise of payday loans has dissipated
       Responsible Credit, the Money and Mental              overnight – particularly when the underlying
       Health Policy Institute and most recently the         conditions which drove much of that demand
       New Economics Foundation (NEF) as convener            remain the same – stagnating wages, heightened
       for the ‘End the Debt Trap’ campaign, to raise        job insecurity, significant pressures on the cost of
       understanding of the damaging impact of               living and the exclusion of millions of people in the
       unsecured debt and high cost credit on individuals,   UK from mainstream financial services.
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Payday Denied   3

We wanted to understand the real-life choices – or     households. It should be a matter of concern
lack of choices – that people who had previously       and priority to policymakers that almost all of
borrowed from payday lenders but who are now           the research participants were wholly unaware of
unable do so are making about their finances.          ethical, fair, more affordable alternatives, often
Are they borrowing money from other sources?           located in their own communities.
What are the pros and cons of these alternatives?
Are they ‘going without’ rather than borrowing?        As commercial high cost credit providers withdraw
Is this a sustainable proposition? What are the        or fold, there is an unprecedented opportunity
characteristics they want to see from any source of    to fill this space through the provision of more
credit they might require in the future?               affordable alternatives, which meet people’s
                                                       needs, broaden choice and can act as a gateway
Carnegie UK Trust and the Barrow Cadbury Trust         to financial inclusion.
commissioned this research to explore these
questions and others, to inform policy and practice,   There are lessons in this report on why there
and ultimately to help create better financial         is a need for credit, and the importance of
options and opportunities for everyone who needs       social capital and self-esteem as factors within
them.                                                  individual’s borrowing decisions. Credit remains an
                                                       emotive issue. The personal accounts in this report
The research reveals that most people who can no       indicate that for the majority of people it remains
longer access a payday loan seek to source that        an important, necessary part of their lives.
credit elsewhere. Most commonly they are turning
to family and friends. While this might be seen as
a positive outcome, the study found evidence that
this experience is by no means always beneficial,
brings significant additional burdens and pressures,   Martyn Evans          Sara Llewellin
and is highly questionable as a long-term solution     CEO                   CEO
to support the financial needs of low income           Carnegie UK Trust     Barrow Cadbury Trust
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
4   Payday Denied

       Executive Summary
       When the government announced a cap on high-              As another of our interviewees told us:
       cost short term credit (HCSTC) in 2015, in the
       face of public outcry about the conduct of some           “My mum actually took out a bank loan for me to
       lenders, many campaigners were delighted. But for         pay off payday loans....
       the millions of people with limited access to credit,     The whole family I think were affected by it.”
       what was the impact of this tighter regulation? Did
       it limit their choice and ability to make ends meet?      Some go without. Again, if the borrowing was for
                                                                 luxuries, then this might also be considered a good
       We listened in depth to 80 of these people, who           thing. But it wasn’t. As one of the people we talked
       needed money, and yet were rejected or ineligible         to put it:
       for ‘payday loans’ because of the new criteria.
                                                                 “I’m not really throwing money about anyway,
       This report presents our findings and makes               I don’t have that much money to throw about.”
       recommendations and suggestions for further
       work.                                                     For some there are benefits: Being refused can
                                                                 be a wake-up call – a signal that a problem needs
       Almost everyone needs help to manage the ebbs             addressing and borrowing may not be the best
       and flows of income and expenditure at some               answer. There is a huge responsibility on financial
       point in their lives, and credit is the main tool which   services industry – but also on others, such as
       has been provided to households to assist with            housing providers, debt advice agencies and
       this. For those on low incomes or facing periods          health and social care providers – to identify the
       when they simply don’t have enough money for              challenges and be open to offering support.
       essentials, accessing credit is often critical.
                                                                 There are many more detailed findings which this
       As Courtney told us, her borrowing was                    report uncovers. The process of listening to people
                                                                 with real, lived experience of needing credit but
       “never just for fun… it was always like, stuff for the    being turned down was an extremely revealing
       kids, clothes, uniform.”                                  and important one. The people we spoke to were
                                                                 articulate, sensible, and reflective and understood
       So, while the consequences of taking out high             very well their own difficulties. They were often
       interest payday loans are well documented, we             frustrated at the difficulties in accessing, what for
       wanted to know what happened when Courtney                them was essential finance to live their lives.
       and others like her were turned down from even
       the costliest of lenders. The findings were incredibly    It is important that their voices are heard: by
       revealing:                                                government; by the financial services industry;
                                                                 by others who might unwittingly cause people to
       Most people turned to friends and family: while           fall into debt; and by advice services and other
       this could be considered a good thing, in that it         agencies.
       keeps people away from the risk of the formality
       of debt recovery or legal sanction, the human cost        We wanted to hear direct from those with lived
       to families, relationships, dignity and respect is        experience. Now we’ve heard from them, it is vital
       significant. While the FCA originally predicted that      we take action.
       60 percent of borrowers with no access to high-
       cost credit would no longer borrow at all, we found
       a significant proportion of the people we spoke to
       were still looking for borrowing options, making the
       issue far more complex than originally anticipated.
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Payday Denied      5

Recommendations                                         4. Government, regulators, and third sector
                                                           organisations to scope the feasibility of a UK
In this context, our recommendations include:              No Interest Loans Scheme (NILS):*
                                                           This research showed that some declined
1. People need access to more and better                   payday applicants of payday loans do not need
   credit products:                                        a traditional credit product for their immediate
   The alternatives – of borrowing from family             financial issues and that any form of interest-
   and friends, going without essentials or seeking        bearing credit is too expensive. This is particularly
   illegal lending – are often worse for some of the       the case for those potential borrowers not in
   people we spoke to. There needs to be greater           work and for whom a formal credit product
   investment in developing low and mid-cost,              would not be appropriate, or who have longer
   affordable products, and in marketing the               term issues arising from benefit delay or income
   social, ethical alternatives.                           reduction during the transition from legacy
                                                           benefit to Universal Credit (we saw evidence of
2. Increased regulatory activity to tackle a               this during the course of this project).
   two-tier payday loans industry:
   Our research shows evidence of an industry                Not all declined payday applicants had access
   split, with some lenders heeding to new                   to, or wanted to, borrow from friends and family.
   stricter rules by the FCA on assessing                    For this group of people, we believe there is a
   affordability, whilst others appear not to                need for more innovation around how to extend
   do so. This suggests that some lenders are                finance in a productive way. We recommend
   interpreting rules on affordability differently           different organisations including the FCA, the
   and haven’t yet achieved harmonisation in                 Treasury, and client-facing organisations such
   their approach to affordability. Some appear              as debt advice charities, coalesce to carry out a
   not to have taken sufficient steps to improve             feasibility study on the provision of NILS similar
   their affordability checks and are providing              to those running in other jurisdictions, to identify
   loans to people who may not meet the criteria             its potential to support those most in need
   set by the FCA. We call on the FCA to tighten             (Australia, for example, has a NILS that is run by
   monitoring of regulated firms with regards                Good Shepherd Microfinance and supported by
   to their affordability assessment process. We             the Australian Government the National Bank of
   suggest increasing the use of mystery shopper             Australia). Such a scheme would sit alongside the
   exercises, including in how online lenders check          scale-up of affordable credit alternatives.
   creditworthiness using automation tools.
                                                             We recommend that additional government
3. Organisational innovation for people to                   departments, including the Department for Work
   avoid unaffordable credit:                                and Pensions, work closely together to determine
   We call for a wide range of organisations,                who would be eligible for a no interest loan and
   including housing associations, local authorities,        who would qualify for a non-credit, welfare-
   social and private landlords, employers, other            based solution such as a grant.
   creditors like utilities companies, to recognise
   the different roles they can play in preventing           We recognise that this approach would need
   individuals with short term cash flow issues              to be targeted on a relatively small group of
   from falling into hardship and seeking credit,            people who are most in need and would require
   when this is not appropriate. We ask these                substantial public funding.
   organisations to impact assess their internal
                                                        * Since the report was drafted and edited the UK Government made an
   processes to ensure they are not causing               announcement in the Budget statement of 29th October 2018 on NILS
   financial harm to their customers, clients, or         stating “No-interest loans scheme pilot – For some people, even borrowing
                                                          from social and community lenders can be unaffordable. Therefore, the
   other beneficiaries of their services. We believe      government, working with leading debt charities and the banking industry,
   having some duty of care towards individuals’          will launch a feasibility study to help to design a pilot for a no-interest loans
                                                          scheme early next year”
   financial health and potential exposure to the
   poverty premium should exist beyond credit
   providers.
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
6   Payday Denied

       5. The development of guidance on informal                 should be starting to demonstrate how it
          lending:                                                is innovating internally to help customers
          Another major theme of this research is that            enhance their financial health and keep pace
          there is an unseen price to pay for informal            with other financial service providers looking to
          borrowing from friends and family, which to the         do the same.
          best of our knowledge has not been explored
          in previous research looking at the impact of        7. Guidelines for debt advice charities on
          payday loan reform. We endorse the creation             specific courses of action for declined
          of a set of guiding principles on what informal         payday applicants:
          lending ‘good practice’ looks like, as these tools      The Money Advice Service should, in
          will help some people to manage their money             consultation with advice providers, design
          when lending informally to family and friends.          a specific set of guidelines on how advice
                                                                  professionals advise declined payday
       6. Payday lenders contributing to the financial            applicants, premised by findings from this
          capability of their customers:                          research showing their additional needs.
          One finding from our research is that an                This would set out, for all advice professionals
          individual can simultaneously be a declined             in the regulated advice sector, a framework
          applicant of a payday loan and an existing or           describing potential additional needs and
          prospective payday loan borrower. The ways in           signposts to address these such as other
          which payday lenders can improve the financial          forms of credit, benefit advance information,
          health of borrowers is therefore also relevant to       or guidance for borrowing from friends and
          declined borrowers. Payday lenders themselves           family. Because declined payday applicants
          have an opportunity to help borrowers rebuild           are likely to be in a more vulnerable financial
          their credit scores and provide roadmaps to             situation debt advice charities should establish
          improve financial standing for the future by            a clear set of guidelines on how to deal
          helping them move into less expensive credit            effectively with this group.
          where appropriate. The payday loans industry
Payday Denied: Exploring the lived experience of declined payday loan applicants - Dr Lindsey Appleyard, Carl Packman, Jordon Lazell - Toynbee Hall
Payday Denied   7

1. Introduction
This research was carried out between January          research provides deeper and more specific insights
2017 and April 2018. It was originally supported       to complement existing quantitative data on the
by Barrow Cadbury Trust to undertake research in       experiences of declined payday loan applicants.
England, and then extended through additional
support from Carnegie UK Trust to include              Specifically, our research asks the following three
Scotland.                                              questions:

The aim of this research is to explore from a          • What impact has the new set of regulations
consumer perspective the impact of the 2015              on HCSTC had since January 2015 on the
cap on the cost of High-Cost, Short-Term Credit          behaviour of borrowers (and to an extent,
(HCSTC), as well as other rules governing the            lenders)?
high cost credit industry put in place at a similar    • Have those regulations positively reshaped the
time. Our focus is on the group of consumers             credit options for borrowers?
who previously had access to a payday loan and         • What is the lived experience of those who are
are now either not eligible or have experienced a        now declined payday applicants and how, if
decline in their payday loan application. From here      at all, are they accessing credit, or managing
on, we call this group of people declined payday         financially under changed circumstances?
applicants (See Glossary in Appendix 1).
                                                       We begin by setting out the context in the first
We undertook 80 in-depth interviews with declined      section, outlining the payday lending market
payday applicants to draw out the financial actions    and its borrowers pre- and post-regulation.
people took subsequently and to understand the         Second, we analyse our findings to look at
lived experience of the regulation, to examine the     the specific consumer journeys taken by those
behaviour and strategies of borrowers as a result of   that are declined access to a payday loan and
not having access to their previous credit provider.   identify key themes that have emerged from the
Due to the number of participants in our research      research. Third, we address the implications of
the findings are indicative rather than exhaustive.    our research and findings in the discussion and
The sample size was not large enough to support        conclusion section. Finally, we set out a series of
testing for statistical significance. Instead our      recommendations.
8   Payday Denied

       2. The payday lending market and
          consumer debt post-crash
       2.1 Context                                             Between 2006 and 20147 a number of conditions
                                                               created the perfect storm for the growth of the
       Economists and policymakers are again sounding          payday loans industry including:
       the alarm on UK household debt growth1. Similarly,
       the Financial Conduct Authority (FCA) has noted         • The increase in the numbers of working poor
       the warning signs about the financial health of UK        whose incomes could not compete with the
       consumers, with levels of consumer borrowing back         rising cost of essential goods;
       to 2008, pre-financial crash levels.                    • A contraction in mainstream credit after
                                                                 the economic recession, as well as a loss of
       The increased use of consumer credit comes at             more than 1,800 bank branches in the period
       the same time as real wages (after outgoings) had         between 2003-2012 changing the look of many
       fallen to the point where they were lower in 2017         high streets across the country, particularly in
       than in 20072. The Personal Finance Research              less affluent areas8; and,
       Centre at the University of Bristol have described      • A significant interest from US providers of
       this post-crash period for consumers making               alternative high-cost credit in establishing a
       cutbacks on their essential expenditure as the            presence in the UK market.
       “practical recession”3 which to some extent makes
       it akin to a personal financial crisis.                 In the next section, we explore the development of the
                                                               payday market in the UK up to the point when new
       According to one analysis the current rise in UK        regulations were introduced and highlight the type of
       consumer debt is primarily being fuelled by use of      households which were using this form of credit.
       credit by safer prime borrowers, contrary to some
       economists’ fears of a surge in borrowing by sub-
       prime borrowers4 . However, there are increasing        2.2 Pre-regulation of HCSTC
       numbers of sub-prime customers that:
                                                               While the formal payday lending sector in the
            may struggle, or believe that                      UK, where shops would offer services including
            they may struggle, to meet the                     exchanging cash for post-dated cheques, has
            credit criteria of mainstream                      existed for many years, it grew in prominence at
            financial institutions and are                     around the same time as the 2008 recession. DFC
            often included in the definition                   Global Corp, a large US company whose most
            of nonstandard [credit]5 .                         profitable companies are outside the USA, include
                                                               the Money Shop in the UK, a subsidiary of Dollar
       Financial exclusion from mainstream sources             Financial UK Limited, which has provided cheque
       of credit is an increasing problem for many             cashing services since 1992. In 2009, The Money
       people. Mainstream financial services have often        Shop recorded 273 stores and 64 franchises across
       focused on super-included, financially stable           the UK, as well as the 2011 acquisition of PayDay
       households with high, secure incomes on the one         UK, one of the UK’s biggest online payday lending
       hand while bypassing lower income households            outlets9.
       whose exclusion has in turn led to many seeking
       alternative high-cost lenders such as home              The payday lending industry is reported to have
       collected credit (aka doorstep lenders), rent to own,   grown from an estimated £100 million worth of
       pawn shops, and payday lenders6 .                       loans made in 200410 to over £2.5 billion in 201311.
                                                               The number of loans taken out more than doubled
                                                               from 2009 to 2013 to reach 10 million in total,
                                                               taken out by 1.6 million of customers, across 400
Payday Denied    9

companies12. This growth has been combined with          Furthermore, all lenders have been urged to
exceptionally high profits for many payday lenders.      voluntarily sign up to real-time data sharing services
                                                         to better help identify credit risks. The Competition
In the UK since at least 2010, payday loans have         and Markets Authority (CMA) in 2015 recommended
been the subject of considerable attention by            improving real-time data sharing between lenders
politicians, the media, and regulators. Before           and credit reference agencies15. Callcredit and Equifax
regulatory changes were made in 2015, the                developed services for short term lenders to use16.
average value of a payday loan taken out by a
consumer was £270 for 30 days13 and the cost of a        The FCA estimates before the cap was set or
payday loan could be between £15-£35 per £100            introduced, the regulator predicted that 70,000 people
borrowed for 30 days, equating to between 448            every year from after the cap would be denied access
percent and 3,752 percent annual percentage rate         to a payday loan due to the cap’s impact. That was
(APR)14 .                                                based on 7 percent of the number of payday loan
                                                         borrowers in 201417. Coupled with wider reforms to the
In November 2013, Rt Hon George Osborne MP,              industry, a total of 160,000 people – or 11 percent of
then the Chancellor of the Exchequer, announced          those who had previously sought to take out a payday
that there would be a legal cap on the cost of a         loan – would lose access to this form of credit18.
payday loan or HCSTC, which the newly created
consumer credit regulator, the FCA, would enforce.       Before the price cap came into force, the FCA
The cap, which came into effect in January 2015          estimated that:
was structured in three ways:
                                                              if consumers no longer had access
1. An initial cost cap of 0.8 percent per day –               to HCSTC, approximately 60
   interest and fees charged must not exceed 0.8              percent would not borrow, 25-30
   percent per day of the amount borrowed;                    percent would go to family and
2 A £15 cap on default fees – if borrowers default,           friends (we have taken steps to
   fees must not exceed £15. Firms can continue               differentiate between ‘friends’ and
   to charge interest after default but not above             ‘illegal lenders’), and around 10
   the initial rate; and,                                     percent would borrow from formal
3 A total cost cap of 100 percent – borrowers                 sources of credit, and 5-10 percent
   must never pay more in fees and interest than              would find funds in other ways (e.g.
   100 percent of what they borrowed.                         decrease savings).19

For credit firms, the price cap covers agreements        The FCA added that less than 2 percent said they would
with an annual percentage rate which is equal to         borrow from illegal money lenders which are sometimes
or exceeds 100 percent and must be substantially         misidentified as family or friends. While it is difficult
repaid within a maximum period of 12 months. For         to see whether or not declining borrowing figures for
contrast, the FCA points out that its definition of      payday loans has translated into borrowing from illegal
HCSTC does not cover:                                    lenders (notoriously difficult to calculate due to it being
                                                         criminal activity), it is interesting to see whether it has
• Credit agreements secured by a mortgage, a             translated into additional pressures elsewhere.
   charge or pledge;
• Credit agreement where the lender is a                 Again in 2014, the FCA estimated that only four
   community finance organisation;                       of the 400 payday lenders in existence at the time
• A home credit loan agreement, bill of sale loan        would remain in the market20 . The FCA and the
   agreement or overdrafts.                              city competition regulator, the Competition and
                                                         Markets Authority (CMA), anticipated that the
Other rules set for the industry, as of July 1st 2014,   remaining lenders would have to change or diversify
included restrictions on rollovers (where borrowers      their business model and/or products in order to
can extend their loan), use of the continuous            be sustainable operations. For example, products
payment authority (CPA), and risk warnings to be         offering longer terms would be an example of where
included on financial promotions.                        lenders were diversifying21.
10   Payday Denied

       In short, regulation was designed to curb                           Office of Fair Trading (OFT) refers
                                                                  2013
       irresponsible lending and protect borrowers in the                  payday lending sector to the
       payday loan market. This research adds depth              Competition Commission
       to the FCA’s research and highlights the lived            The Office of Fair Trading, which was the
       experience of declined payday applicants since the        regulatory body with oversight of the consumer
       introduction of the regulation. In the next section       credit market before the Financial Conduct
       we explore the post-regulation HCSTC market and           Authority, referred the entire payday loans sector
       the impact on borrowers.                                  to the Competition Commission, the body that
                                                                 preceded the Competition and Markets Authority
                                                                 (CMA), to assess what was referred to at the time
       2.3 Key changes in the debate around                      as “deep-rooted problems”22.
       high-cost credit: a chronological review
                                                                           Government to cap payday
                                                                  2013
       Payday lending has been hotly debated in the UK                     loan costs
       since 2010. A number of key policy changes, as well       The Rt. Hon. George Osborne MP, Chancellor of the
       as other events of significant interest, have taken       Exchequer at the time, announced that the
       place in that time, including the establishment of the    government would legislate to introduce a cap on
       Financial Conduct Authority in 2013. In this section      the cost of payday loans. The announcement took
       we detail the most significant of these events to         many people by surprise. The cap was formally
       illustrate the context behind some of those debates:      established through amendments to the Banking
                                                                 Reform Bill which was currently going through
                  Attempted creation of the Consumer             Parliament. This gave the FCA powers to set and
        2010
                  Credit (Regulation & Advice) Bill 2010-12      enforce that cap.
       Stella Creasy MP, with a high-profile interest in the
       payday loans industry, raised the issue of payday                   New rules on CPAs, risk warnings
                                                                  2014
       lending in Parliament in a 10-minute rule bill.                     and rollovers
       Creasy was aiming to introduce the Consumer               The FCA introduced brand new rules for payday
       Credit (Regulation and Advice) Bill 2010-12, a step       lenders and other firms offering high-cost short-
       that would have given lawmakers the ability to cap        term credit. The new rules related to use of the
       interest rates and fee charges. This would have           Continuous Payment Authority (CPA), risk warnings
       introduced a Total Cost of Credit cap: a price ceiling    and rollover loans.
       on how much a lender can charge in absolute
       terms, including interest on the principle, fees and      CPA: A Continuous Payment Authority, which
       other ways of introducing extra costs to a loan           may also be called a recurring payment, is where
       contract. Creasy’s Bill wasn’t passed.                    a business has permission to take a series of
                                                                 payments from a customer’s debit or credit card.
                  Credit Union Expansion                         High-cost short-term lenders were now limited
        2012
                  Project (CUEP)                                 to two unsuccessful attempts to use a CPA to
       Department for Work and Pensions (DWP)                    take a repayment and could not use a CPA to
       announced that £38m would be spent on what it             take a part-payment. The use of CPA was seen
       called the Credit Union Expansion Project (CUEP).         as advantageous to collections. With only 2
       One significant reason that government                    unsuccessful attempts allowed, the onus was on
       policymakers were interested in developing the            lending more responsibly.
       credit union sector was in response to the growing
       use of high-cost credit. CUEP aimed to attract one        Risk warnings: As of July 1st 2014, firms
       million new members by 2019, and to modernise             offering high-cost short-term credit must now
       the credit union sector with new technology – the         include a prominent risk warning in electronic
       so-called Model Credit Union initiative.                  communications on all financial promotions (unless
                                                                 the medium used makes this impracticable). The
       In 2015 the project was pushed back by one year and to    risk warning is now also required on print, TV and
       date three credit unions utilized the new platform. The   radio promotions.
       CUEP contract was terminated in 2017 by the DWP.
Payday Denied   11

Rollovers: Where a borrower cannot afford to pay           in order to “encourage greater competition”23. The
back a loan many lenders offer the opportunity             CMA also found that most borrowers were not
to ‘rollover’ or extend the loan. Where a high-            shopping around before borrowing from a payday
cost short-term loan has been rolled over twice,           lender and that 53 percent of payday loans were
including before 1 July 2014, lenders will not be          used for everyday expenses.
able to rollover the loan again.
                                                                     Applying for re-authorisation
                                                            2016
Since 1 July 2014 the FCA has required lenders to
           st

provide prospective and existing borrowers with an         After the introduction of new regulations on the
information sheet on the risks of extending a loan.        payday loans market all firms were invited to
                                                           re-apply for authorisation. They were allowed to
          The introduction of the cap on the               continue to operate with interim authorisations.
    2015
          cost of a payday loan                            Later in the year the FCA granted authorisations
The Financial Conduct Authority (FCA) introduced           to firms to continue their operations in a changed
a cap on the initial cost of credit at 0.8 percent         regulatory environment.
per day; default fees were limited to a maximum
of £15 and a 100 percent repayment cap assured                       FCA opens consultation reviewing
                                                            2016
that borrowers would never have to repay more                        the cap on the cost of credit
than double the amount they borrowed.                      The FCA opened a call for input on high-cost credit
                                                           (including rent-to-own, home collected credit,
           FCA on credit broking and CMA on                catalogue credit) and overdrafts, including a review
    2015
           Price Comparison Websites (PCWs)                of the payday loan price cap.
The FCA introduced new rules on credit broking and
fees, which affect payday lenders. The rules included:     The consultation calls for input on the following
                                                           items:
• Banning credit brokers from charging fees to
     customers, and from requesting customers’                High-cost products – The FCA will look across
     payment details unless they meet FCA                     all high-cost products to build a full picture
     requirements.                                            of how these are used, whether they cause
•    Credit brokers must make sure customers are              detriment and, if so, to which consumers. This
     given clear information about who they are               will enable the FCA to consider whether further
     dealing with, what fee will be payable, and              policy interventions are needed.
     when and how the fee will be payable.
•    Fee-charging brokers will need to notify the             Overdrafts – The CMA identified a number
     FCA, quarterly, of the websites they operate.            of competition issues with overdrafts, which
•    All brokers will need to include their legal             include poor price transparency and the
     name (as it appears in the FCA Register) in              nature and level of charges, especially for
     all advertising and all correspondence with              unarranged overdrafts. The FCA will look in
     customers.                                               more detail at overdrafts from a consumer
•    Advertising must clearly state that the firm is a        protection perspective, as well as a competition
     credit broker and not a lender; if the firm is both      perspective using its full range of powers.
     a credit broker and a lender, the advertising will
     need to make clear that they are advertising             The high-cost short-term credit
     their broking services, not their lending.               (payday loan) price cap – The price cap
•    There are additional rules on cancellation rights        came into force on 2nd January 2015.
     for distance contracts (for example, online
     credit broking), including rights to a refund.           Repeat and multiple high-cost short-term
                                                              credit (HCSTC) borrowing – The FCA will
The CMA published findings from their investigation           continue to monitor the impact that repeat
into the payday loans market, where they                      and multiple borrowing has on the market and
recommended that lenders must make their product              consumers.
available on at least one price comparison website,
12 Payday Denied

                                                               • Across users of less mainstream products we
                FCA high-cost credit review and CRA              observe a consistent pattern of their financial
       2017
                data analysis of UK personal debt                situation worsening over time. However, that
      The FCA carried out an analysis of personal debt           it not to say it is the credit product itself which
      held by UK consumers using credit reference                causes this deterioration. It is possible for
      agency (CRA) data, including non-mortgage debt             consumers to recover from these positions –
      such as credit cards, personal loans, motor finance        we observe that former borrowers who are
      agreements and utility bill debt.                          no longer using these products often have
                                                                 improved financial outcomes.
      They sought to answer the following questions:           • The composition of debts varies considerably
                                                                 across people borrowing on different less
      • Market size: How large are the different high-           mainstream credit products. Credit card and
        cost credit product markets?                             unsecured personal loans commonly account
      • Credit performance: What are the outcomes                for a high proportion of personal debt. Home
        for consumers using different high-cost credit           credit, guarantor loan and rent-to-own borrowers
        products?                                                typically have the largest proportion of their
      • Consumer circumstances: What are the socio-              outstanding debt on each of those products
        economic circumstances of consumers using                respectively. We observed that it is common for
        different high-cost credit products?                     these individuals to have outstanding debt on
                                                                 household bills – though this accounts for a small
      A summary of the findings show:                            proportion of their overall personal debt24.

      • Over half of UK adults hold outstanding                         FCA high-cost credit review
                                                                2018
        personal debt. Over 30% of outstanding                          and Consultation
        personal debt is held by 1.3 million people –          The FCA published a review and consultation call
        2.6% of UK adults.                                     on HCSTC and overdrafts.
      • There is large variation in the sizes of less
        mainstream credit markets. Of these, catalogue         Their main finding on the price cap on HCSTC
        credit is a lot larger than others by number of        regulatory changes which had been introduced
        consumers.                                             was that outcomes had improved for consumers.
      • There are large differences in the arrears,            This finding informed the decision to maintain the
        default rates and repeated consumer use of             cap at its current level for a further three years.
        different less mainstream credit markets.
      • There are similarities in the distribution of credit   In the document the FCA identifies other credit
        scores of borrowers using less mainstream credit       products for review: overdrafts (arranged and
        products. The exception to this is catalogue           unarranged), for which there is a separate
        credit borrowers who, despite having noticeably        consultation25, rent to own (RTO), home collected
        better credit scores, have relatively high arrears     credit and catalogue credit.
        and default rates on these products.
      • A greater diversity in the socio-economic profile      The FCA details plans for further work assessing
        of people borrowing across less mainstream             potential rules around introducing a price cap
        credit products is observed via measures other         on RTO goods, and the level and structure of a
        than credit scores. Rent-to-own borrowers have         possible cap26.
        much lower incomes, higher debt-to-income
        (DTI) ratios and hold debt on more products            The other significant element of FCA reports
        than those using other less mainstream                 recently has been their willingness to extort the
        products. HCSTC borrowers are much younger             virtue of “mid-cost” credit delivered by ethical,
        than home credit borrowers.                            social lenders. This is a significant departure for the
                                                               regulator recognising that credit demand will likely
                                                               continue, even if supply is constrained, and that
                                                               alternatives need to be supported.
Payday Denied   13

2.4 Post-regulation of HCSTC                             • 42 percent of the 126 firms, who were operating
                                                           in the market in 2013, have received full
Post-regulation of HCSTC, payday lenders have              authorisation to carry out payday loan or
changed their operations and created new                   instalment loan activity.
products to remain competitive alongside the             • 20 percent remain active in the market awaiting
regulation. Stepchange reported that:                      the outcome of their authorisation application.

     …the HCSTC market has                               Today, HCSTC regulation has had a positive impact
     changed and adapted to the post                     for borrowers. The FCA report that of those that
     price cap landscape. The market                     “took out an HCSTC loan in 2015, over 30 percent
     has broadened to encompass                          no longer did so in 2016”30. This suggests that the
     different forms of loans that,                      market is markedly smaller and there is a high
     unlike the ‘traditional’ 30 day                     turnover of payday loan customers.
     payday loan, are repaid over
     two months to a year. Giving                        The FCA shows that since the regulation was
     customers a longer period                           introduced, borrowers tend to have more
     to repay and breaking up                            outstanding debts (particularly HCSTC, credit
     repayments into smaller chunks                      cards and overdrafts) and have lower credit scores,
     can be beneficial, but it can also                  making them higher risk borrowers. However, they
     mean interest builds up over a                      go on to say that:
     longer period making borrowing
     more expensive overall. 27                               We found no evidence that
                                                              consumers who have not been
Citizens Advice, for example, has not reported a              able to get HCSTC products
surge among its clients towards other forms of                since the cap have generally
high-cost credit28 . However, among StepChange                had negative consequences as a
clients in 2017, two in five were in arrears on at            result. The majority (63 percent)
least one of their priority household expenditures,           of consumers turned down for
such as an energy bills, council tax, or their monthly        HCSTC products since the cap
mortgage or rent payments29. StepChange also                  was introduced believe that
reported an increase in the percentage of clients             they are better off as a result.
eligible to pay Council Tax who are in arrears rising         We have not seen a significant
from 22 percent (in 2012) to 30 percent (in 2017).            ‘waterbed effect’ with consumers
The figure in Scotland rose from 18 percent (in               increasing their use of other
2010) to 41 percent (in 2017). This does not show a           high-cost credit products after
direct correlation but we need to ask whether non-            failing to get a HCSTC loan.
priority debts have risen as people that previously           We also found no evidence
had access to a payday loan are no longer able.               that consumers who have been
                                                              turned down for HCSTC are
Citizens Advice’s analysis of the market post-cap             more likely to have subsequently
found the following:                                          used illegal money lenders.31
14   Payday Denied

       Of those that applied for a payday loan and were
       declined, the FCA reported that:                                              In our research we found that informal
                                                                                 use of credit from friends or family is more
            15 percent of declined                                               complex. People do not feel this option is a
            consumers take out an                                                long-term solution for them, often finding
            alternative credit product …                                         that they can do this type of borrowing only
            while around 25 percent turn to                                      once. For this reason many of the people we
            informal forms of credit such as                                     spoke to would prefer to take an alternative
            friends or family32                                                  credit product, or even continue to look for
                                                                                 a payday loan, than ask friends or family.
                                                                                 While consumers might feel better off
                                                                                 today, this has the possibility of changing
                                                                                 significantly in the near future.

       Figure 1: Number of HCSTC originations (January 2012- December 2016)33

       Number of origintations
           (per month)
       1,050,000

         900,000

         750,000

         600,000

         450,000

         300,000

         150,000

               0
               Jan 12       July 12     Jan 13      July 13      Jan 14       July 14    Jan 15     July 15     Jan 16   July 16
                                                              Month of origintations
                        Price Cap Consultation Paper data              Call for Input data           Feedback Statement data

       Table 1: Size of HCSTC market (2013-2016)34

                     Number of consumers                    Average              Number of              Value of          Value of
                       taking out product             (mean) value              originations        originations      outstanding
                                (millions)           of originations               (millions)           (billions)   debt (billions)
        2013                                  1.7                   £240                     10.3             £2.5                 £2.5
        2014                                 1.2                    £240                      5.3             £1.3                 £1.3
        2015                                 0.7                    £260                      3.3             £0.8                 £0.8
        2016                                 0.8                    £290                      3.6             £1.1                 £1.1
Payday Denied   15

The FCA also report the number of new loans to         • A 45 percent reduction in clients accessing
consumers between 2012 and 2016 to show the              advice about payday loan issues, which is in
extent of the market and regulatory changes:             contrast to the trend with all debt advice which
                                                         has remained stable and all advice given which
• 10.3m to 3.6m loans                                    has increased slightly.
• 1.7m to 0.8m customers                               • An 86 percent reduction in clients contacting its
• £2.5bn to £1.1bn outstanding                           consumer service about payday loans between
                                                         2013 and 2016.
The FCA was also able to show a reduction in           • A 61 percent post-cap reduction in unique users
default loans in the time that the cap on the cost       accessing payday loan content on the external
of credit was live in the HCSTC market:                  website.
                                                       • The expert advice team had 29 complex cases
     The ‘default rate’ is defined as the                on payday loans referred to them leading up to
     proportion of loans originated                      the cap and have had no cases since the cap38.
     which enter default as recorded
     on a borrower’s credit file. [We                  Before the cap payday loans were commonly
     show] these to have significantly                 associated with sub-prime borrowers (borrowers
     decreased with fewer than 6                       with tarnished or limited credit histories),
     percent of loans originated during                particularly in media discussions about the
     the first half of 2016 entering                   industry. Since the cap, some lenders still in the
     default compared to over 8                        market have restructured their business models
     percent of loans at times in 2015                 to focus more attention on a new category
     (and double digits in 2014 as                     of borrower: the near-prime borrower (which
     shown in prior data analysis).35                  also describes a borrower with a tarnished or
                                                       limited credit history but who is nearer the stage
Using industry data, the Social Market Foundation      of repairing their credit histories). One report
found that:                                            estimates that the near-prime borrower group in
                                                       the UK is between 10 and 14 million people39.
     …the number of loans sold in
     the period January to April 2016                  At the same time, in discussing not just the regulation
     were 42 percent lower than in                     of the payday loans sector but the provision of
     the period January to April 2013.                 alternative affordable credit, the FCA refer to the
     This data is drawn from firms that                ‘mid-cost’ credit market, which it describes as being
     operated through to 2016 and may                  “above prime borrowing rates, but below the HCSTC
     underestimate the drop in loans                   cap level.” The FCA in an update on its review of high-
     – for instance, a large number of                 cost credit said the following:
     firms exited the market in this
     period, such as many cheque                            We recognise the value of high-
     centres. Consumers buying loans                        cost credit for consumers who lack
     in 2015 are on average coming                          other options, where firms have
     from higher-income brackets than                       made appropriate assessment of
     in 2013.36                                             their creditworthiness. However,
                                                            we are also exploring why
After the cap on the cost of a payday loan was              relatively lower cost, mid-price,
introduced StepChange found that just 16 percent            lower risk credit options are not
of its clients had HCSTC debts in the first half of         more widely available. We have
2016 compared to nearly a quarter (23 percent) in           been looking at barriers to the
201337. In 2016, Citizens Advice found a significant        provision of alternatives and have
reduction in the numbers of clients with payday             been considering what might be
loan problems since the introduction of the price           done to address these.40
cap in January 2015. This included the following:
16   Payday Denied

       2.5 Declined payday applicants                          • 15 percent of declined consumers take out an
                                                                 alternative credit product and 25 percent turn
       The main remit of this research was to find out           to informal forms of credit such as friends or
       about the lived experience of a borrower who              family.
       previously had access to payday loan credit, but        • No evidence that decline leads directly to illegal
       after the cap on the cost of payday loans and             money lenders.
       increased regulation over that industry, is unable or   • 63 percent thought it was ‘for the best’.
       ineligible to access that form of credit.               • 60 percent do not go on to borrow from other
                                                                 sources.
       In 2017, the FCA reported that the borrower profile     • 37 percent took no further action (including
       tends to be male, employed, with an average               ‘going without’).
       net income of £23,600, and an average age of            • 7 percent cut expenditure as a result.42
       3541. This shift in income and borrower profile
       is significant particularly in an era of frozen,           In addition, the FCA stated the following:
       stagnant or reducing wages and benefits. A shift
       in demographic toward less risky customers is also      • “We do not consider the price cap is currently
       reported by Rent to Own retailer, BrightHouse,            too tight … consumers declined for HCSTC do
       and is also evident in the customer profiles of the       not generally appear to be harmed as a result”
       largest home credit provider, Provident Financial       • “We found no evidence that declined payday
       Group.                                                    applicants were generally taking out other high-
                                                                 cost products. We also found no robust evidence
       This research supplements insight from the FCA            of declined payday applicants increasingly
       on its initial findings on outcomes for a borrower        turning to illegal money lenders”
       now declined a payday loan. In July 2017 the
       FCA published a feedback statement on why they          In the following section, we present our own
       made the decision to maintain the price cap of          findings about declined payday applicants which
       a payday loan. In this statement they presented         provides qualitative detail to the existing snapshot
       their findings on declined payday applicants:           of this group of people.
Payday Denied   17

3. Analysis
Our analysis is based on 80 interviews with          • Employed full-time,
declined payday applicants to examine the            • Single or living alone in rented (private or social)
lived experience of the HCSTC regulation. In this      housing,
section, we:                                         • Parents with dependent children and
                                                     • Educated to HND level or equivalent.
• Detail the key demographics of the 80              • Almost 50 percent of participants were living
  participants.                                        on a low income, in a household earning
• We outline the journeys of declined payday           less than £20,000 per annum (39 out of 80
  applicants.                                          participants)44
• We then examine the lived experience and           • Most people we interviewed did not consider
  different impacts of being declined.                 themselves to have a disability (See Figures 2 to
                                                       9 below).
Drawing on our evidence, we highlight the
complexity within each declined applicant journey    Our participants are similar to those participating
which adds nuance to the existing research on        in previous studies focusing on the consumers of
declined payday applicants (and users) of payday     HCSTC prior to the regulation45 . First, borrowers
loans. Finally, we summarise the key findings        reflect a socio-economic profile which generally
identified through the research.                     positions them as socially marginalised, in low paid
                                                     and insecure work at risk of financial exclusion and
3.1 Research participants                            living in poverty46 . The majority of the participants
                                                     were in full-time employment highlighting the
We undertook 80 in-depth interviews with declined    financial precarity of those experiencing in-work
payday applicants’ of HCSTC43 ​who were generally:   poverty. Our interview locations centred on payday
                                                     loan ‘hotspots’ of Glasgow47, Birmingham48 and
• Female,                                            London49. Further details of our methodology can
• Aged between 25-44,                                be found in Appendix 2.

Figure 2: Participants gender                        Figure 3: Participants’ age
                                                      80

                        1%
                                                      70
                                                                            64
                                                      60

                                                      50
                                      36%

                                                      40

                                                      30
                63%

                                                      20
                                                                                      14
                                                      10

                                                                  1                              1
                                                       0
  Male      Female     Transgender                             16-24      25-44     45-64       65+
18   Payday Denied

       Figure 4: Participants’ employment status                                                                                                                            Figure 5: Participants’ marital status
                                                                                                                                                                            40          39
                                                                                     1%
                                                                                                                                                                            35
                                                            11%

                                                                                                                                                                            30

                                                                                                                                                                            25

                    21%                                                                                                                                                     20                                 20

                                                                                                                                       67%                                  15

                                                                                                                                                                                                   11
                                                                                                                                                                            10

                                                                                                                                                                             5                                               5
                                                                                                                                                                                                                                             3
                                                                                                                                                                                                                                                            1         1
                                                                                                                                                                             0

                                                                                                                                                                                        Single

                                                                                                                                                                                                   Married

                                                                                                                                                                                                                Cohabiting

                                                                                                                                                                                                                             Divorced

                                                                                                                                                                                                                                             Separated

                                                                                                                                                                                                                                                            Widowed

                                                                                                                                                                                                                                                                      Unknown
          Full time                         Part time                                               Unemployed                                           Student

       Figure 6: Participants’ household income                                                                                                                             Figure 7: Participants’ housing
        40                                        34
                                                                                                                                                                                                                     1%
        35                                                                                                                                                                                                    4%
                                                                                   26
        30                                                                                                                                                                                  15%
                                              27
        25
                                                                                21
                                                                                                                                                                                                                                                           40%
        20

               15                                                                                                     13
        15
                 12
        10                                                                                               10                                                           7
                                                                                                                                                5                                                40%
         5                                                                                                                                                            6
                                                                                                                                                4
         0
             Under £10k                   £10-20k                               20-30k                 30-40k                           40-50k                       50k+
                                                                                                                                                                              Rented private                 Social housing                              Owned with mortgage
             Number of participants                                                                 Percentage                                                                Living with family             Shared ownership

       Figure 8: Participants’ highest level of                                                                                                                             Figure 9: Participants’ disability
       education and qualifications
        20
                                            16

                                                                                                                                                                                                                                 14%

        15
                                                                                     14
                                                                                                                       13
                                                                                                      51

        10                                                   10

                        7
                                                                                                                                                                                                    86%
         5
                                                                                                                                         13

                                                                                                                                                          4
         0
                      No qualifications

                                            GCSE or equiv

                                                             A-level of equiv

                                                                                     NVQ or equiv

                                                                                                      HND or equiv.

                                                                                                                       Undergraduate

                                                                                                                                          Postgraduate

                                                                                                                                                           Unknown

                                                                                                                                                                                                               Yes                      No
Payday Denied   19

3.2 Declined applicant actions                          Our research found that when declined or unable to
                                                        access a payday loan, participants were more likely to
We interviewed 80 people, 64 had been formally          seek credit from another source (either an alternative
declined from a payday loan since the regulation        formal lending route or friends and family) than “go
was introduced. The remaining 16 participants that      without” credit by cutting back spending.
had not been formally declined were self-excluded
from this type of credit as they would no longer be     Of the 64 people that were declined a payday
eligible for a payday loan for a number of reasons      loan, we found that 58 percent (37 out of 64
(See Table 2 for typical examples). For example,        participants) took action to seek access to other
they had been declined from other sources of            credit after being declined (e.g. applied to another
credit such as a bank overdraft or credit card, which   lender, friends and family) (Table 3). Between
due to over-indebtedness or lack of affordability,      these participants, a total of 46 different possible
positioned them in a constrained environment, and       actions were identified to seek access to credit. For
therefore put them in a similar category to those       example, participants employed multiple strategies
that were formally declined.                            to manage their financial situation:

From this point onwards, our findings focus on               “So, really, just manage my money
the 64 participants that were formally declined              better. Stop buying things that I
for a payday loan since 2015. From these 64                  can’t afford, really…. I’ve got an
qualitative research participants, we have created           overdraft and that’s it.
a typology of 16 actions that a declined applicant           (Susie, Birmingham)
carried out after being declined a payday loan (see
Table 3 and Figure 10). We found that participants      The remaining 42 percent of participants (27
took a series of different actions after being          out of 64 participants) took action towards other
declined that can be categorised in two ways:           strategies that did not involve seeking credit (e.g.
                                                        increased working hours) (Table 3). Between these
1. access to credit, or;                                participants, a total of 48 different possible actions
2. no access to credit.                                 were identified to deal with the consequences
                                                        of being declined a payday loan, which did not
Due to the number of participants in our research       include seeking access to credit.
the findings are indicative rather than exhaustive.
In the findings that follow we use percentages          The most common step that an individual took
but the sample size is not large enough to support      after being declined was to access credit from
testing for statistical significance. Instead the       friends and family (taken by 23 of the 64 declined
findings provide deeper and more specific insights      payday applicants or 36 percent) (Table 3). Our
to complement existing quantitative data on the         research found the number resorting to family and
experiences of declined payday loan applicants          friends to be similar to the 40 percent identified

Table 2: Examples of the 16 participants that were self-excluded from payday loans

 Participant         Declined applicant of payday and          Reasons why they may be declined
                     other credit                              from payday post-regulation
 Steven              Overdraft                                 Existing loans from Street UK and
                                                               Provident
 Paula               Vanquis credit card                       Previous arrears with rent-to-own
                     Co--op bank for personal loan
 Nikki               0 percent credit card                     Yes, previously in a debt management
                                                               plan with credit card debt
 Molly               Home improvement loan                     Too many payday loans
                     Equity release
20   Payday Denied

       Table 3: Declined applicant actions

        Declined outcome                                                                  England           Scotland                   Total
        Access to credit                                                                  23                23                         46
        Successful at a different payday lender                                           9                 2                          11
        Unsuccessful at a different payday lender                                         0                 2                          2
        Successful at sister company                                                      2                 0                          2
        Community finance                                                                 2                 0                          2
        Credit Union                                                                      1                 2                          3
        Credit from credit cards                                                          1                 0                          1
        Money from family and friends                                                     6                 17                         23
        Family member took out loan                                                       1                 0                          1
        Entered false information to payday lender                                        1                 0                          1
        No access to credit                                                               28                20                         48
        Went without                                                                      6                 5                          11
        Arrears                                                                           1                 3                          4
        Savings                                                                           1                 0                          1
        Cutbacks and Budgeting                                                            7                 8                          15
        Debt management advice                                                            2                 3                          5
        Debt management plan                                                              9                 1                          10
        Increased working e.g. overtime                                                   2                 0                          2

       Figure 10: Declined applicant journeys51
                                                                            Key
                                                                    London, Birmingham
                                                                         Glasgow

                                  Access to credit                                                      No access to credit
                                    (37 people)                                                             (27 people)

                                                           Payday loan
           Different                                      access via false         Went without
            payday                                         information                 (6)                                    Debt management
            lender                                              (1)                    (5)
                   Credit card
                       (1)                                                          Arrears
                                      Community          Successful at                (1)
                                        finance         sister company                (3)
                         Credit Union                                                                                           Plan        Advice
                                           (2)                 (2)
                              (1)                                                                                                (9)         (2)
                             (2)                                                         Savings                  Increased      (1)         (3)
                                                      Family and friends                   (1)                     working
                                                                                                                      (2)
        Successful
           (9)     Unsuccessful                                                                    Cutbacks and
           (2)         (2)                                                                          Budgeting
                                                                                                       (7)
                                         Borrowed                                                      (8)
                                        from family           Family
                                        and friends          member
                                             (6)           took out loan
                                            (17)                (1)
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