The Bank of England recently published the trends for lending for January 2012. They show that:
The major UK lenders are Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland and together they accounted for around … 45% of the stock of consumer credit.
In 2008 – 2010 that figure was steady around 50%, which led analysts at PricewaterhouseCoopers UK, in their report Precious Plastic, to assert that since the financial crisis alternatives to the credit card have taken root (noting that the credit card is experiencing a mid-life crisis.
They mention debit cards, but the real winners in unsecured lending are payday loan companies (see the two figures).
mainstream lenders are continuing to be selective about whom they lend to and have effectively redrawn the boundaries of what constitutes prime and sub-prime … At the same time, we believe that credit scores across the UK population have deteriorated, as consumers have struggled to cope with the challenging economic conditions … As a result, consumers are facedwith a double-whammy – lenders being more selective and the possibility that their credit score has deteriorated.
In short, and I repeat, the boom years of 1997 – 2007 kept everyone drunk on life through credit availability, not wage increases. Now banks are not lending, consumers are getting turned away or not bothering with banks at all out of fear their credit scores will deteriorate, incomes have fallen by 3.5% in real terms over the last year and basically debt is being privatised to individuals.
This begs for public spending and investment. But no, market winners are payday loans who offer very expensive credit and are bad for consumers in the long term.
But banks are allowing for this. Why don’t they lend short term and to the sub-prime market? Will it really break the bank? Are they not losing money by allowing the payday loan companies to grow off the backs of this market? Is it to save their reputation of keeping good, wholesome middle class customers? Is this a class thing? Or do banks make money from the payday loan companies in other, back-door ways? After all, payday loan companies must get their capital from somewhere, right?
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