Access to credit and illegal lending: The shape of the market is as important as the size

Our new report looks in detail at the changing shape of the credit market, and how with shrinking provision, demand is often being met by unregulated loans from friends and family and sometimes illegal lenders

This quantitative report aims to build on last year’s qualitative  ‘As one door closes…’ report in which we highlighted the dangers of a growing credit vacuum for people on lower incomes and in financially vulnerable circumstances.

The findings from our two weighted GB online surveys undertaken in 2023 indicate that over 10m people say they had borrowed from friends or family in the previous 12 months, and more than 3m people had potentially used an unlicensed lender or loan shark in the last three years.

This report supports contentions about growing lack of access for many households highlighted in a number of other significant reports in the past 6 months. The significant challenge is reaching the right balance between consumer protection and consumer access to credit – the shape of the market is as important as the size.

Research recommendations

Action is needed to widen and deepen access to affordable credit. This will require a combination of new product development, regulatory adjustments, capital investment into community finance, a more prominent role played by mainstream banks including lending directly into the non-standard market as well as new forms of higher cost credit.

Critically, this requires a continued and renewed focus on developing a preventative approach towards illegal money lending by regulators and a range of other agencies.

Expand the sections below to read our recommendations. You can access the full report at the bottom of the page.

Widening access to affordable credit

Greater capitalisation

Driving initiatives that scale up and support the provision of community finance was called for in the Woolard Review in 2021. It was needed then and it remains needed now.

The scaling up of affordable credit will also require significant investment in technology, marketing, product development, as well as forms of loan capital or financial instruments.

There is a critical role for those with capital to support community finance, if they are unwilling or unable to lend themselves, and to assist in the rehabilitation of higher cost credit lending.

For community finance to grow at the rate required, they need access to capital or other financial instruments. This ought to be given a high priority within the banking industry who should review their tolerance and risk appetite levels to realise the potential capital returns as well as the wider social return on any investment.

Regulatory adjustment

A broader definition of what constitutes good consumer outcomes that includes access to credit, consumer protection as well as its affordability is required. This should also include the examination of alternatives to APR as the way of defining product value.  

In parallel, regulators and policymakers should encourage small sum lending by reflecting on how legislative measures or guidance most constraining access to small sum credit might be appropriately mitigated or eliminated.  Including whether access to credit should sit alongside affordability as a policy driver and what learnings can be taken form the US small dollar loan model.

Consideration should also be given to whether income maximisation tools (such as benefit calculators and grant finders) should be a mandatory part of the customer journey to help people access funds that may reduce their need to borrow at all.

New product development

Mainstream finance must be more innovative and lead the development of new products to address the credit vacuum for those on lower incomes, left behind communities and other disadvantaged groups.

Working with organisations like Fair4All Finance mainstream finance should co-design products which work for changing customer needs, including revolving credit options and credit options which build scores gradually, to provide further buffers in the financial system to illegal money lending.

An example identified by this research is the potential to replicate the US small dollar loan model to deliver sub $1,000 loans to lower income households. Six of the largest US banks (out of eight) are now following this model, whereas only one major bank in the UK currently offers small sum credit as a product on its website..   

A preventative approach to impede illegal lending

A decisive, co-ordinated strategy


Authority should be given to the National Illegal Moneylending Teams across the nation to develop and enact a decisive and coordinated preventative strategy on illegal lending.

Delivered with HMT and other key government departments, agencies and industry working together to maintain an orderly credit market, the strategy should seek to combat financial and data crime, and address related threats to household prosperity, the wider economy and underlying social equity.

This will likely need to include the Department for Business, the Financial Conduct Authority, the National Economic Crime Centre and the National Crime Agency, as well as industry and consumer representatives such as UK Finance, the community finance sector and debt advice charities.

UK banks should work with the illegal money lending teams to actively reach out to their current customers where they believe they may be at risk of borrowing from illegal lenders to offer alternative legal credit options.

Expand remit for Illegal Moneylending Teams

The National Illegal Money Lending Team’s remit should be expanded to investigate digital illegal lending, with an increase in resources required to develop the necessary skills and tools to tackle this.

Wider authorities with specific understanding of fraud and data crime also need to be aware and alert (where this is not already discreetly happening) to the potential danger from criminal operations using illegal online lending to intensify their cybercrime efforts.

Further research on digital illegal lending

Our research shows the dangers associated with a growth of digital illegal lending, namely increased financial and data crime.

Further research on this is required by the National Illegal Money Lending Teams, Fair4All Finance and with a range of partners to determine where there are the most significant concerns.

Attention: We have been informed of fraudulent activity where people are offering unsecured loans using our name.

Please be careful as we do not provide loans or contact customers for this purpose. If you've been approached, please report to Action Fraud immediately via their website or on 0300 123 2040.

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