Britons spurned by banks caught in a coronavirus credit crunchMay 21, 2020
LONDON (Reuters) – When a payroll glitch left Natalie Gallagher so short of cash this month she couldn’t afford her bus fare to work, she turned to her usual lender Amigo for an emergency top-up loan.
FILE PHOTO: A pedestrian walks past a payday lending shop in London March 6, 2013. REUTERS/Suzanne Plunkett/File Photo
But she was out of luck. Like many of the lenders that thousands of higher-risk borrowers in Britain depend on, Amigo had tightened its criteria for handing out cash in the wake of the coronavirus.
“They approved my top-up but 10 minutes later I got a text saying my reason for the top-up isn’t one they were doing right now,” she said. “Amigo was my only real option.”
While mainstream banks have been obliged to give customers payment holidays on mortgages and discounted three-month overdrafts, less support has been offered to so-called subprime borrowers who often need extra cash just to stay afloat.
Some lenders have closed their doors to new customers while others have been unable to extend cash lifelines to borrowers since lockdown restrictions banned weekly visits by doorstep lending agents to their homes.
According to the Money Advice Service, about 17 million people in Britain have less than 100 pounds ($122) in savings to dip into when a crisis strikes and those working in some of the sectors worst hit by the pandemic are particularly vulnerable.
More than 6 million workers in the retail, travel, hospitality and beauty sectors are 25% more likely than people in other industries to have no money to fall back on, the Centre for Social Justice think-tank said last month.
“The bottom line is that there’s nowhere for these people to go,” Roger Gewolb, founder of loan comparison site FairMoney said. “The consumer lending market has come to a standstill.”
Gallagher, 29, from Manchester in northern England, said while past debts with payday lenders such as Wonga had damaged her credit rating, she was surprised to be rejected this month.
“I’d understand if I wanted a new loan or had missed payments but I have never missed a payment,” said Gallagher, who works with offenders.
A spokesman for Amigo said Gallagher’s request was declined because the purpose of the loan wasn’t covered in its current lending criteria, which have been tightened since the pandemic.
“An Amigo loan is intended for considered purchases, rather than day-to-day expenses; this is why the minimum loan we offer is 1,000 pounds ($1,225).”
SHORT OF OPTIONS
While some low-income borrowers just struggle to budget, others have been blacklisted by the mainstream financial system and rely on alternative credit providers such as guarantor or doorstep lenders to make ends meet.
Credit score provider ClearScore, which shows consumers what deals are available based on their circumstances, said subprime borrowers could on average access only 0.17 of loans in a snapshot of the market on May 16. On Jan. 1, the average was 1.
On the same date…