After reading the excellent recent “Cashing in on the poor” article by Rebecca Burn-Callander in the October issue of Management Today, I realised that UK instalment credit had come a full circle from the 1980s.
Back then I was working for an American subprime company in the North West of England. Their model was quite simple and worked well, offering short term instalment credit to people via shops enabling them to buy items such as TVs, video recorders (remember them!) bikes and prams etc. We would underwrite using local knowledge and credit checks, allocating the maximum amount we thought they were worth and up-sell the instalment credit term to a 36 month personal loan with insurance.
Brighthouse, Littlewoods and Freemans have been around for a long time, it is just that through the 90’s and up to 2008 they have been over shadowed by the ease of credit card debt and unsecured loans from banks and self certified secured debt on home owners.
Now that this type of easy credit has disappeared, the people who have always lived hand to mouth are driven back to store credit (security on the goods) and pay day loans, with the unfortunate consequence of high interest rates which reflect this new period of austerity and conservatism.
Credit card companies, for the majority, have all but ceased consolidations and interest free credit for balance transfers, banks have tightened underwriting and hiked rates and mortgage companies have pulled back loan to values in a falling property market. Money is available but not in the quantities that it used to be and it is definitely not as cheap as it was.
Darryl Bowman of Wonga.com is right to say they are relevant to their customers, people who want access to funds quickly and because currently traditional lenders are not prepared to fill the gap. Given the obvious mistakes of the recent past we just need to ensure that the right checks and balances are put into place.
Companies such as Littlewoods and Brighthouse are finding themselves back in fashion providing a local service in a difficult market, albeit at a cost to the customer. Demand for credit will not go away, but as the mainstream lenders become more stringent local instalment credit, alongside payday loans will thrive…….we have come a full circle!