Non-profit lenders ‘turning down people for £50 loans’ amid cost of living crisis


When not-for-profit lender Fair for You launched a scheme offering small loans to buy food with retailer Iceland in August, it didn’t anticipate the scale of the personal finance crisis it would reveal.

The loans ranged from £25 to £75, with the money loaded on to a pre-paid card to spend at Iceland and repaid at a rate of £10 per week with no interest. 

On the day the scheme launched, the website crashed due to demand. 

‘Up against it’: Simon Dukes of non-profit lender Fair for You says the rising cost of energy and food has had a huge impact on its customers, with many seeing outgoings exceed income

‘We knew it would be popular, but we didn’t think it would be that popular,’ says Fair for You chief executive Simon Dukes, speaking to This is Money. 

The scheme, known as Food Club, had 50,000 applications in its first week. But what Dukes didn’t expect was the number of applicants that would have to be turned down, because they could not prove they had the resources to pay back even such a small amount.  

‘Providing micro loans for food club between £25 and £75 we knew they would really make a difference to people’s lives,’ he says. ‘But I don’t think we realised we would be declining as many people on affordability grounds for a £50 loan.’

Dukes, who has held senior roles within the civil service and fraud prevention service Cifas, tries to speak directly to customers once a week to help him understand what had brought them to Fair for You.

‘Speaking to some customers, they are absolutely up against it,’ he says. ‘All of the things that have been written about; people skipping meals, issues of heat and energy costs, it is all absolutely spot on. There is no scaremongering here.’

Many organisations helping those struggling financially are reporting record levels of demand at the moment. 

Simon Dukes, chief executive of Fair for You, says it didn't realise how popular the micro-loan scheme with Iceland would be

Simon Dukes, chief executive of Fair for You, says it didn’t realise how popular the micro-loan scheme with Iceland would be

Citizens Advice says the number of people it has helped with crisis support this year so far has already exceeded the full-year rates for 2021, 2020 and 2019. 

The Government-backed charity is currently helping two people every minute.

Some employers are stepping in to support staff, too. Retail giant Tesco is now offering salary advances to its employees to help them cope with the worsening cost-of-living crisis.

It has announced that most employees can apply to receive up to a quarter of their contractual pay early through to the loan provider Salary Finance, although they must pay a £1.49 fee for every withdrawal they make. 

Much of this has been attributed to worsening inflation, which rose to 10.1 per cent in September and has now hit a new record of 11.1 per cent. 

But according to Dukes, Fair for You first noticed a spike in demand for its loans at the end of 2021, when the Government took away the £20 universal credit uplift put in place during Covid-19.

‘Its £20, but for our customers that’s a lot,’ says Dukes. ‘People are taking out loans for that.’

There is data to support his anecdotal evidence. Research by Aviva has found one in three (34 per cent) UK workers feel they are just getting by financially, with half (50 per cent) saying that their current financial situation is affecting their mental health.

>> Work out your household budget using This is Money’s calculator 

Citizen's Advice's latest data set reveals the charity has already helped more people with crisis support this year than during the whole of 2021

Citizen’s Advice’s latest data set reveals the charity has already helped more people with crisis support this year than during the whole of 2021

Fair for You’s team are having to decline more loan applications based on affordability. These are cases where they do not think the borrower has the capacity to pay the money back, even with the lender’s flexible terms which allow changes to the repayment plan without penalty.

As an FCA-regulated lender the company is still bound by responsible lending rules meaning it cannot saddle customers with unaffordable debt.

However, what that means is that applicants they have to turn away are left to find money elsewhere. Using open banking data, Dukes says he can see the rise in borrowing among customers since the summer, with a particular uptick in the use of credit cards and buy-now-pay-later lenders.

Customers’ credit card debt has roughly doubled since last year, he adds.

‘I spoke to our underwriters and it is becoming harder to say yes to people for a loan and that has got more difficult in the past four months,’ Dukes adds.

Cost of living: Dukes says his customers' credit card debt has roughly doubled since last year

Cost of living: Dukes says his customers’ credit card debt has roughly doubled since last year

Desperate borrowers turn to high-cost credit 

A key concern, he says, are those who fall out of their systems completely because there isn’t a way to help via community development finance institutions and credit unions. 

He says these people often turn to illegal lenders or loan sharks who Dukes warns ‘will lend at whatever rate it is and will get their money back somehow.’

1.7 million people across the UK are borrowing from high-cost lenders in order to pay off existing debts, according to research from responsible lender Creditspring.

Neil Kadagathur, co-founder and chief executive of Creditspring, comments: ‘The UK is teetering on the edge of a debt crisis. The rising cost of living has driven reliance on credit but also forced millions of people into a corner where they’ve no choice but to borrow from several lenders to survive.

cost of living

‘This situation can rapidly spiral out of control and put households under unimaginable financial pressure.’

A quarter of people (24 per cent) who borrowed from high-cost lenders sought credit so they could repay other debts, the research shows.  

Another avenue for those struggling to borrow money elsewhere is buy-now-pay-later lenders. Dukes says around a third of his customers are now in debt to buy-now-pay-later lenders, which include firms such as Klarna, Clearpay and Afterpay. 

These lenders, which offer customers the ability to pay for items in payment instalments rather than all at once, often begin charging little or no interest. 

Faisel Rahman is the chief executive of Fair Finance, another responsible lender which offers loans of up to £1,000 on installments to people it describes as  ‘financially excluded’. 

He says the way buy-now-pay-later lenders work is often opaque and complex.

When payments are missed borrowers may be subject to fees or the debt could be bundled up and sold to a third party. 

Issues arise, he adds, when shoppers have taken out several of these loans which then build quickly to a significant amount of repayment commitments every month.

Faisel Rahman of Fair Finance says customers he speaks to have a 'negative budget' which means they are already in debt once essentials such as a food shop are paid for

Faisel Rahman of Fair Finance says customers he speaks to have a ‘negative budget’ which means they are already in debt once essentials such as a food shop are paid for

More people in work seeking to borrow money 

As well as a rise in the demand for credit, there has also been a shift in the circumstances of customers. 

Dukes says that previously customers were predominantly unemployed, and many have a long-term disability. 

However, the lender is now helping customers who are employed but are unable to access credit elsewhere.

Rahman has also seen this occurring at Fair Finance.  

We are seeing negative budgets for the first time, people don’t have enough to manage their basic outgoings and I have never seen it at this scale before 

Faisel Rahman, Fair Finance 

‘Working people who had been good at managing their money now find with rising prices that they lack sufficient disposable income,’ he says. 

There has been a shrinkage in the amount we have been able to lend to people responsibly and safely, and that’s a trend that has seen ongoing but in the last six months it has rapidly increased,’ says Rahman.

From June to September the social enterprise lender saw demand triple, as they helped as many people as the previous 12 months combined.

As someone who has worked in the fair lending market for over 15 years Rahman says this is the first time he has seen situations where many people’s income no longer matches their essential expenditure.

‘We find that once you match people’s income with priority payments [bills, food etc], we are seeing negative budgets for the first time, people don’t have enough to manage their basic outgoings and I have never seen it at this scale before.’

>> Work out your household budget using This is Money’s calculator 

Citizens Advice data shows 48% of people coming to it for help have no disposable income

Citizens Advice data shows 48% of people coming to it for help have no disposable income

There is an opportunity here for mainstream banks, says Dukes. Borrowers want to repay their debts and be financially sustainable, he says, but there is ‘inequality’ in system.

‘Inequality is the inbuilt prejudice of our financial system, there is no reason why the big banks couldn’t put me out of business tomorrow just by offering reasonable lending rates to people who want to pay back,’ he adds.

‘They don’t need financial education, they can make every penny count and they can feed their family on £20 a week.’

Those with poor credit face ‘prejudice’

Rahman says that there is an opportunity for an increased role for credit unions and community lenders, who are able to consolidate expensive debts and help customers pay it off in a sustainable way. He also thinks that while the situation is severe, more is being done.

The Government is backing lenders like Fair for You in order to support the responsible lending market. 

Faisel Rahman, CEO at Fair Finance says there is an opportunity for community lenders and credit unions to support customers with access to credit.

Faisel Rahman, CEO at Fair Finance says there is an opportunity for community lenders and credit unions to support customers with access to credit.

Banks including JP Morgan, Shawbrook and UniCredit who have all backed Fair Finance, as well as City regulator the FCA, are keen to take action in order to support people in getting access to responsible credit.

In the short term Dukes welcomes chancellor Jeremy Hunt’s announcement in the Autumn statement that benefits will rise with inflation next year – an increase of 10.1 per cent. 

However, the news was tempered by a report from the Office for Budget Responsibility that found rising prices erode real wages and reduce living standards by 7 per cent in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional Government support.

‘An inflationary rise in benefits is certainly to be welcomed, but it is not really progress; there is still a long way to go in tackling the financial, mental and physical stresses which low-income households are under,’ says Dukes. 

However, he warns that the financial system is still ‘prejudiced against people with poor credit ratings’ and until it is fixed ‘these families will continue to experience additional hardships.’

‘We have a sizeable part of our population who are really struggling it is just desperate and the fact is loans aren’t the answer. The people we serve just don’t have enough money,’ he says.

‘There is nothing I can do to magic that away. They haven’t got enough money, so I cannot lend to them even if I wanted to.’ 

Credit unions and other community lenders are joining forces to urge people across the country to carefully consider their credit choices and to check out a range of local and national community lenders that may suit their financial circumstances, loan requirements and timescales. 

They can be found at Find Your Credit Union for credit unions near you, and Finding Finance – responsible finance providers offering simple, smaller affordable loans. 

How can you save money? 

The cost-of-living crisis has put our finances into sharp focus. If you’re looking for inspiration to save money or audit your finances, the following checklist might help:

Check your savings rate: Many big banks continue to pay a pittance while challengers are raising rates. Here are the best savings deals from our independent tables.

Haggle a better broadband, TV or phone deal: Many of us are guilty of overpaying once a contract expires with telecoms giants. Compare broadband, phone and TV packages to see if you can save money.

Compare insurance: When it comes to car, home and travel insurance, it is important to shop around, make sure you have the right level of cover and use a highly-rated company. See if you can find a cheaper deal with our comparison service powered by Compare the Market.

Mortgage rate: Whether you’re buying a new home, remortgaging to a new deal or buying an investment property, our partner L&C can help you find the best rates – and you’ll pay no fee for their advice.

Energy tips: Energy prices are soaring. Here’s what you need to know, whether you can still fix and energy-saving tips that work.

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