"The whole ecosystem, from lenders, government and the regulators need to do better, and start seeing customers as human beings, not just credit scores."
- Robert Pasco, CEO and co-founder of Plend
The recovery from the cost-of-living crisis is increasing financial inequality, according to new research from Plend.
While all sections of society are still struggling with their finances, the report finds that the impact of the cost-of-living crisis has been disproportionately severe for ethnic minorities and women - 72% of whom are struggling to repay credit. With their financial recovery taking longer, the existing gap in access to affordable credit and overall financial health is widening.
In addition, those from ethnic minority backgrounds are more likely to feel locked out of the financial system, with 40% feeling this way in comparison to 27% for those from white backgrounds. Those from ethnic minorities are also twice as likely to have been rejected for a loan in the last 24 months, often exasperating existing financial difficulties. This is highlighted by the fact that 57% of those from ethnic minorities feel their financial situation would improve if they had access to a loan with a fair interest rate, compared to 39% for white people.
The report indicates that women are also particularly affected, with an increased likelihood of having to borrow money (45% of women vs 38% of men), suffering negative mental health impacts due to the cost-of-living crisis (50% vs 36%), as well as difficulties in repaying loans (72% vs 65%).
In another sign of the disparities that exist, nearly 60% of respondents in Northern Ireland are feeling the strain compared to just 36% in the South East of England.
In addition, Plend uncovered that millions of individuals are borrowing money from unregulated sources including friends and family, with one in ten even turning to loan sharks as they struggle to keep up with the increased cost of living.
Overall, the report found that 44% of UK adults now consider themselves to be financially vulnerable and 41% have had to borrow money – including from family and friends – because of the financial impacts of the cost-of-living crisis, an increase of 34% of people last year.
Robert Pasco, CEO and co-founder of Plend, commented: “Despite news about falling inflation and potential interest rate cuts, the credit market remains fundamentally broken, causing a vicious cycle of high-interest rates and unaffordable repayments from an increasing number of unregulated and illegal providers. It is clear from both the report and our own customer base that there is tremendous demand for a fairer lending system and accessible credit products that don’t currently yet exist.
“The whole ecosystem, from lenders, government and the regulators need to do better, and start seeing customers as human beings, not just credit scores. Our lending data shows no correlation between loan performance and where someone lives, despite banks and lenders still relying on Office of National Statistics (ONS) data to make credit affordability decisions, which only serves to increase the cost or block people out of certain credit products despite being able to afford them - this has to change as the postcode you live in should not have a bearing on what you can afford.”
“The recommendations in the Report provide a framework for what we as an industry can do now, alongside support from the Financial Conduct Authority (FCA) and Government to ensure we tackle financial exclusion within the UK in a measured and effective way - the sooner we start the better.”
