People borrow money for a range of reasons and in a range of ways. While regulation of ‘fringe’ or ‘subprime’ lenders has already been increased in the last few years, attention is now turning to the mainstream financial institutions who make billions of pounds from overdrafts, particularly unarranged overdrafts. Reforms from April 2020 seek to simplify such overdrafts with the hope or reducing their costs.
8.1 Mortgage lending (approvals) dropped dramatically in 2007/8, at the start of the financial crash. They have increased slowly since then but appear to have plateaued in the last couple of years.
8.2 The rate of growth of net credit card lending dropped dramatically in 2005/6 and dipped again in 2012. In the first quarter of 2019, the rate of growth fell to about 7% in 2019 from a recent peak of about 9% in 2016.
8.3 The rate of growth of net consumer credit lending (excluding student loans and credit cards) is still increasing but at a slower rate than in the last year or two. The rate of growth fell to 6 per cent in the first quarter of 2019.
8.4 According to the Financial Conduct Authority in 2018, 52 million people have a personal current account (PCA) in the UK. More than a third used an arranged overdraft and 26% used an unarranged overdraft each year. The majority of unarranged overdrafts were for less than £50. On average, firms made £2.50 for every £1 lent through unarranged overdrafts. In 2017, firms made an estimated £2.4bn in revenue from overdrafts and people in deprived areas were more likely to pay these fees.
8.5 In April 2019, the FCA announced a number of reforms of overdrafts that will (from April 2020): stop firms from charging higher prices for unarranged overdrafts than for arranged overdrafts; ban fixed fees for borrowing through an overdraft – no daily or monthly fees, or fees for having an overdraft facility; require firms to price by a simple annual interest rate; require firms to do more to identify customers who are showing signs of financial strain or are in financial difficulty and implement a strategy to reduce repeat use.
8.6 At the end of 2018, there were over 2 million members of credit unions in the United Kingdom (1.8 million adults and 240,000 children/young people). England had most members in total but, as a percentage of population, fewer than 2 per cent of people in England were members. In Northern Ireland, by contrast, more than a third of the population were members of a credit union in 2018.