This is the first time we have published regulatory data on the HCSTC market collected from returns submitted by consumer credit firms to the FCA. We use this data to monitor the HCSTC market and inform our supervision of firms and other regulatory functions.
- Key findings
- Introduction to HCSTC
- Current HCSTC market and trends
- UK geographical area analysis
- Borrower insights
- About the data
Key findings
Current HCSTC market and trends
- over 5.4 million loans were made in the year to 30 June 2018
- lending volumes have risen since 2016, but remain well below levels seen in 2013
- the top 10 lenders account for around 85% of the total number of new loans
- on average borrowers are due to repay 1.65 times the amount they borrow
- costs of borrowing have been stable and are lower than before the price cap
UK geographical area analysis
- the North West has the highest number of loans per head of adult population (125 per 1,000) and Northern Ireland the lowest (74 per 1,000)
- average loan values are highest in Greater London
HCSTC borrower insights
- 37% of payday loan borrowers and 29% of short-term instalment borrowers are aged 25 to 34
- 37% of HCSTC borrowers are tenants (including council tenants) and 26% are living with parents
- payday loan borrowers (61%) and borrowers using short-term instalment loans (41%) have a lower level of confidence managing their money than the wider UK adult population (24%)
- 67% of payday loan borrowers and 49% of short-term instalment borrowers are over-indebted compared with 15% of UK adults
Introduction to HCSTC
HCSTC loans are unsecured loans with an annual percentage interest rate (APR) of 100% or more and where the credit is due to be repaid, or substantially repaid, within 12 months. In January 2015, we introduced rules capping charges for HCSTC loans. Find out more about the definition of HCSTC and our work on HCSTC price capping.
Current HCSTC market and trends
Loan volumes have been increasing
Our Product Sales Data (PSD) record that there were just over 5.4 million loans originated in the year to 30 June 2018. Our data on the HCSTC market indicate that lending volumes have been on an upward trend over the last 2 years. Although not directly comparable to PSD, previous Credit Reference Agency (CRA) data suggest that the market may have had its lowest point around 2015. Despite some recovery, current lending volumes remain well down on the previous peak for this market. Lending volumes in 2013, before FCA regulation, were estimated at around 10 million per year[2].
Chart tips: hover over data series to view the data values and filter the data categories by clicking on the legend.
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Data table
Figure 1 shows that there were 1.46 million loans made in Q2 2018, an increase of 11% on Q1 2018 (1.32 million). Preliminary data for Q3 2018 suggest that overall lending has since fallen back to similar levels to those seen in Q1 2018.
Figure 1 also shows what appears to be a jump in lending between Q1 2017 and Q2 2017. This is because a significant lender only started reporting to us in Q2 2017, which distorts the trend when comparing with earlier periods.
These data reflect the aggregate number of loans made in a period but not the number of borrowers, as a borrower may take out more than one loan. We do not collect data explicitly on the number of borrowers in PSD but we estimate that for the year to 30 June 2018 there were around 1.7 million borrowers (taking out 5.4 million loans).
The market is concentrated
During the period covered in this analysis, the market was fairly concentrated with 10 firms accounting for around 85% of new loans. Many of the firms carry out a small amount of business - two thirds of the firms reported making fewer than 1,000 loans each in Q2 2018.
Based on the number of authorised HCSTC firms reporting loan transactions to us in PSD, there were around 90 firms that were active in the market in Q2 2018. On the same basis, the number of active firms decreased by over 15% in the past 2 years. This, however, has not resulted in a reduction in total lending.
Consumers borrow £1.3 billion per year and repay over £2 billion
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Data table
For the year, 1 July 2017 to 30 June 2018, the total value of loans originated was just under £1.3 billion and the total amount payable was £2.1 billion. Figure 2 shows that the Q2 2018 loan value and amount payable mirrored the jump in the volume of loans with loan value up by 12% and amount payable 13% on Q1 2018.
Note: Total amount payable by the borrower is the sum of the amount borrowed and the total charges payable, eg interest, as well as any advance payment. The numbers include the total amount payable at the point the agreement was entered into, but not penalty charges or interest that may subsequently be incurred. Due to data cleansing, the number of loans included in the loan value and amount payable analysis is smaller than that included in the loan volumes analysis.
Borrowers repay 1.65 times the amount they borrow
The average loan value in the year to 30 June 2018 was £250. The average amount payable was £413 which is 1.65 times the average amount borrowed. This ratio has been fairly stable over the 2 year period covered in the PSD. The price cap introduced in 2015 stipulates that the amount repaid by the borrower (including all charges) should not exceed twice the amount borrowed.
Average loan APR is stable
Over the past 2 years the average APR charged for HCSTC has been consistent, hovering around 1,250% (mean value). The median APR value is slightly higher at around 1,300%. Within this there will be variations of APR depending on the features of the loan. For example, the loans repayable by instalments over a longer period may typically have lower APRs than single instalment payday loans.
Although our PSD does not cover the period before the FCA price cap regulation, and no direct comparisons can be established, other data sources suggest that APR levels have dropped significantly since 2015. To put current APRs in perspective, in 2013 the top 5 payday lenders quoted representative APRs ranging between 1,990% and 5,850%[3].
UK geographical area analysis
London, the North West and South East have the highest number of loans
In terms of the total number of loans originated, London accounts for 15% of the market followed by the North West (14%) and South East (12%).
Table 1 – Total number of loans per UK geographical area July 2017 to June 2018
| UK geographical area | Number of loans | % of total |
|---|---|---|
| Central & Greater London | 796,202 | 15.0% |
| North West | 734,835 | 13.8% |
| South East | 641,315 | 12.1% |
| East of England | 484,780 | 9.1% |
| Yorkshire and The Humber | 458,486 | 8.6% |
| West Midlands | 457,896 | 8.6% |
| Scotland | 454,922 | 8.6% |
| South West | 375,752 | 7.1% |
| East Midlands | 331,321 | 6.2% |
| North East | 256,383 | 4.8% |
| Wales | 212,299 | 4.0% |
| Northern Ireland | 109,900 | 2.1% |
Source: FCA Product Sales Data
More loans per capita in the North of England
When the total number of loans is contextualised according to the adult population living in each area (18 years old and over), the North West has the largest number of loans originated per 1,000 adult population (125 loans), followed by the North East (118 loans). In contrast, Northern Ireland has the lowest (74 loans). The fact that Credit Unions are more commonly used in Northern Ireland may be a factor here. Our analysis, however, does not allow us to establish the causes of the UK geographical area differences.
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Average value of loans is lower in the North of England and higher in London
Figure 4 shows that Greater London not only has more loans in total, but the value of each loan is on average higher (£284) than in other geographical areas of the UK (UK average = £250). This is likely to be due to higher costs of living in the capital. In contrast, the North West is one of the UK geographical areas with the largest number of loans originated, but it has the second lowest average loan amount (£234).
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Borrower insights
Borrowers are predominantly young
According to our Financial Lives Survey[4] 2017, borrowers with HCSTC loans (payday and short-term instalment loans) vary in age.
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Figure 5 shows that borrowers between 25 to 34 years old holding HCSTC loans (33.4%) were particularly overrepresented compared to the UK adults within that age range (17.5%). Similarly, borrowers over 55 years old were significantly less likely to have HCSTC loans (12.2%) compared to the UK population within that age group (34.8%). The survey also found that 60% of payday loan borrowers and 45% for short-term instalment loans were female, compared with 51% of the UK population being female.
HCSTC borrowers tend to live in rented properties or with parents
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Five in six HCSTC customers are working full time. Our analysis of 2 years of PSD, from Q3 2016 to Q2 2018 shows the numbers have changed very little over this period although there was a slight decrease in the percentage of people on benefits using HCSTC from 3.9% in 2016-2017 to 3.0% in 2017-2018.
In addition, the PSD data suggest that borrowers are mainly ‘Property Tenants’ or ‘Living with their Parents’ (see Figure 6).
HCSTC borrowers are less likely to be confident managing money
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Figure 7 shows 61% of consumers with a payday loan and 41% of borrowers with a short-term instalment loan have low confidence in managing their money, compared with 24% of all UK adults. In addition, 56% of consumers with a payday loan and 48% of borrowers with a short-term instalment loan rated themselves as having low levels of knowledge about financial matters. These compare with 46% of all UK adults reporting similar levels of knowledge about financial matters.
Note: Respondents with ‘Low Levels’ are those scoring from 0 to 6, on a scale of 0 to 10 where 0 is 'not at all confident' or 'not at all knowledgeable', and 10 is 'completely confident' or 'very knowledgeable'.
HCSTC borrowers are more likely to be in financial difficulties
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Data from the Financial Lives Survey suggest that almost 7 in 10 payday loan borrowers and half of short-term instalment borrowers are over-indebted (as defined by MoneyHelper, formerly the Money Advice Service[5]), compared with just 15% of all UK adults. In this context, over-indebtedness involves feeling that keeping up with bills and credit commitments is a heavy burden as well as reporting that they had fallen behind on, or missed, payments for credit commitments or bills for 3 or more months.
The trend previously described could help to explain why most consumers with a payday loan (87%) or short-term instalment loan (73%) reported ‘low levels of satisfaction’ when asked in the Financial Lives Survey how satisfied they were with their overall financial circumstances, compared to 42% of the whole UK adult population.
Borrowers have lower confidence in the financial services industry
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HCSTC consumers are less likely to agree or strongly agree with the statement ‘I have confidence in the UK financial services industry’ (28%) in comparison with total UK adults (38%). It is not possible to tell, based on our current analysis, if the lack of confidence in the financial services industry is a direct consequence of their access to HCSTC.
About the data
The FCA assumed responsibility for regulating consumer credit activities in April 2014. There followed a transitional period during which firms held interim permissions for consumer credit activities and were granted FCA authorisation on a phased basis. Firms only start regulatory reporting to us once they are authorised. So, we have waited until we have close to a full population of authorised firms reporting to us before publishing these data.
The PSD content of this page reflects the data as submitted to us by firms. Lender firms submit PSD on a quarterly basis, providing us with details of the loans they originated in the quarter concerned. PSD only covers new loans issued in a period and does not provide information on the stock of loans held. The dataset used for this analysis covers the period from 1 July 2016 to 30 June 2018 (8 quarters). For much of our analysis we have focused on the most recent year of data - 1 July 2017 to 30 June 2018.
We estimate that the population of firms included in the dataset represents at least 90% of the HCSTC market (based on the number of new loans originated). One significant lender did not start submitting data until Q2 2017. Care should be taken when directly comparing data for quarters before and after this change - in particular, when comparing the aggregate loan volumes, loan values and amounts payable. The leading payday loans provider, WDFC Ltd (Wonga), went into administration in late August 2018 and was active up to the end of the period covered by this dataset.
The CRA data source that has been used for FCA publications including our previous reviews on the High Cost Credit market[6] and the PSD data used in this analysis are not necessarily compatible. So, trend information should not be inferred between the two data sources.
We have carried out selected cleansing to filter out extreme outlier values that are likely to have been misreported. This may result in the exclusion of up to around 5% of submitted transactions depending on the data being analysed. We have not included some data items featured in the PSD dataset where we think the data quality is compromised and publishing would be misleading.
To provide additional insight into the profile of HCSTC borrowers we have supplemented the PSD with data from the Financial Lives Survey[4]. When referring to ‘borrowers’ from the Financial Lives Survey, we mean a consumer who at the time of interview or in the previous months had one or more payday loans, or short-term instalment loans. The Financial Lives Survey 2017 is based on interviews conducted between December 2016 and April 2017.
What we mean by HCSTC
One of the main types of loan that falls within our definition of a HCSTC loan is often called a payday loan - traditionally repayable within 1 month, in a single instalment and attracting a very high APR. The HCSTC market also increasingly features loans which are of a longer duration than a month and repayable over several instalments (short-term instalment loans).
Read the full legal definition of HCSTC[7]
The wider high-cost credit market includes products other than HCSTC such as overdrafts, home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor, and logbook loans. This analysis focuses just on the HCSTC subset.
HCSTC price capping
Following our introduction of rules to cap HCSTC loan charges, all firms must ensure that:
- interest and fees charged must not exceed 0.8% per day of the amount borrowed
- if borrowers default, fees must not exceed £15
- borrowers must never pay more in fees and interest than 100% of what they borrowed
In July 2017, we published the results of our assessment of the effectiveness of the HCSTC price cap[8] along with a review of the wider high-cost credit market. Our research concluded that the cap was proving effective in protecting consumers from excessive charges. We committed to maintain the price cap at the current level and to review again by 2020.
Because of the limited period covered by product sales data (PSD), the data on this page does not allow direct comparison with the market before FCA regulation and imposition of the price cap. To put the current market position into context we have provided some references to the state of the market before FCA regulation based on other sources.
Copyright
The data on this page is available under the terms of the Open Government Licence[9].