Alternatives to high cost credit and why they’re needed
by Laura Hillhouse, on August 7, 2020
Soar has always been on a mission to revolutionise the responsible banking and lending market with our technology so that we can help to tackle irresponsible lending. Institutions such as Credit Unions and Community Development Financial Institutions (CDFI's), do so much for those who are financially vulnerable and that's why we're working with them to help these people gain access to affordable credit when they need it most.
The FCA took over the regulations of the high cost credit market in 2014. By doing this, there have been significant changes made in this space but a focus has now been put on a more long-term solution which is alternative solutions to high cost credit. These alternatives are being discussed more seriously to protect the 3 million consumers who are using payday lenders and other high cost credit products. The trouble with high cost lenders is that official bodies have the little control of the business models of these lenders which is why more has to be done to promote those lenders who are being more responsible in their lending activities.
Credit Unions, Community Development Financial Institutions (CDFI’s) and other local funds all offer alternative products to high cost credit and at fairer terms and interest rates. However, the way they operate often leads to people turning to the likes of payday lenders for quick access to money. A big challenge is that they’re traditionally branch operated organisations. This is of course, now having to change because of the current pandemic and they are also having to re-look at introducing automation a lot faster than previously planned. Automation is a huge deal for consumers. If you don’t have it, many are turning to other providers who can give them access to funds quickly and in real-time.
Without these types of changes, completely tackling irresponsible lending will be difficult. That being said, many responsible lenders are taking the necessary steps to becoming 'digital first' organisations. We are working with organisations across the country that have affordable alternatives to high cost credit and are looking to adopt new technology that will allow them to help more people. We’re providing Credit Unions and CDFI’s with the technology that they need to serve those who need help with their finances quickly. In a recent report from Step Change, it was highlighted that many consumers use high cost loans to buy their weekly shop or make repairs to household appliances. This is why we need to do more to end the cycle of high cost credit so that consumers don't have to be charged unfair rates when they are in need of access to credit quickly in order to live. There are providers out there who can help, we just need to make sure they have the technology they need to move forward with the constantly evolving consumer expectations.
All of these alternatives are feasible as long as we continue to focus on digital transformation and don't lose sight of what we can achieve by taking a stand against irresponsible lending. As always, we are continuing to work with our customers to give them all of the tools that they need to serve their memberships effectively.
For a no obligation chat with us about what you can do to embrace technology and help put an end to high cost credit, contact us today.