We welcome publication of the Woolard Review and its programme for reform. Its emphasis on boosting alternatives to high-cost credit, and its holistic approach to issues including the treatment of the very poorest when they need help are timely, especially in light of the financial havoc wreaked by the Covid-19 pandemic.
We particularly applaud the recognition that a sustainable market needs more alternatives to high-cost credit. We look forward to working with the FCA, the Treasury and Fair4All Finance to bring forward the recommendations to:
- Support the increased lending capacity of Community Development Finance Institutions, including through subsidies or the development of investment incentives;
- Encourage greater involvement of mainstream lenders in the non-prime credit markets;
- Identify and address barriers preventing consumers having better awareness of alternative credit products.
There are better alternatives than exploitative high-cost credit. Mainstream financial institutions should partner with community development finance institutions (CDFIs) so people needing affordable credit can access it, when appropriate and affordable, from non-profit lenders who make their customers’ lives better, not worse.
CDFIs are specialists at lending in the sub-prime market and achieving good outcomes for their customers, but they lack access to enough sustainable sources of capital. International examples show how legislation which encourages banks to invest in lower-income communities has led to them investing in these communities through CDFIs. In addition referral and product partnerships between the mainstream and the community finance sector would create more opportunities for financial empowerment for those who typically feel financial insecurity. We have the tools to do this in the UK, and if we want to build back better then this model is something we should all get behind.
At the same time, consumers can not benefit from greater availability of alternatives to high-cost credit if they are not aware of them. The review underlines the fact that many consumers use forms of credit they see others around them using, which can have negative implications if the credit being used is harmful. It recommends that the FCA should work with Fair4All Finance to identify and address awareness barriers in the market.
In addition to this, we welcome the other recommendations in the review, particularly to ensure there is strong provision of debt advice and debt solutions, the urgent need to regulate all buy now pay later products, and to build a better credit information market.