Understanding the Drivers of Illegal Moneylenders: Findings and Implications

There has been a growing concern about the levels of illegal moneylending in the UK since 2021. The estimates of the number of borrowers from illegal lenders have varied widely, prompting this study to explore the potential reasons for this in more detail. It focuses on the varying methodologies employed by different surveys and conducts a secondary analysis of the 2020 Financial Lives Survey report. The study aims to identify the demographic characteristics and other factors associated with the use of illegal moneylenders and estimates the number of people at risk of using them due to the cost-of-living crisis.?

The primary data for this research, the Financial Lives Survey, was provided by the Consumer Data Research Centre (CDRC). It is a nationally representative survey with around 16,000 respondents. The survey revealed that fewer than 1 in 300 people used illegal moneylenders in 2020, translating to an estimated 167,000 people.

Key Findings:

Demographic factors play a significant role. People involved in short-term internet-based jobs (like Uber or Deliveroo), those with low or no qualifications, and individuals with long-term health conditions that significantly limit daily activities are more likely to resort to illegal lenders. Around 1 in every 9 home credit borrowers and 1 in 25 payday borrowers are at risk of using an illegal lender.

Implications for Society and Economy:

The rise in the use of illegal moneylenders can have severe implications for society and the economy. Borrowers are often subjected to exorbitant interest rates, leading to a cycle of debt that can be challenging to break. This can result in increased financial stress, mental health issues, and a decline in overall well-being. From an economic perspective, the rise in illegal lending can undermine the formal financial system, leading to a lack of trust and reduced investments.

Understanding the factors driving the use of illegal moneylenders is crucial for policymakers, regulators, and financial institutions. Addressing the root causes, whether socio-economic or related to the availability of credit, can help curb this trend and ensure a more financially secure future for all.

Publication: Gibbons, D? (2023). What is driving the use of illegal moneylenders? Centre for Responsible Credit. https://www.responsible-credit.org.uk/report-tags/illegal-lending?

CDRC-ULO Data: FCA Financial Lives Survey https://data.cdrc.ac.uk/dataset/fca-financial-lives-survey?

Hashtags: #moneylending, #demographic, #homecredit, #debt

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Damon Gibbons