Market failure in sub-prime credit needs a better plan

Demand for alternative forms of finance seem set to increase but supply is restricted. A classic market failure borne out of regulatory concerns for the vulnerable could push those very customers into the hands of those operating outside the regulatory perimeter.   

As the lifeboats that kept many afloat through the pandemic are allowed to deflate it seems inevitable that many more people will find themselves unable to access the facilities offered by mainstream lenders. This 'sub-prime' sector of the market has historically been served by lenders who accept problematic recovery and high levels of default as a cost of business. The business models, including high rates of interest, expose providers to regulatory censure and high complaint volumes.  The exit of Provident and the troubles of Amigo make the difficulties of operating successfully clear but also raise questions about how the sector should be served.     

Fair4all Finance report that over 3 million people access forms of high cost credit in the UK and that 11.5million of us have less than £100 in savings - highly vulnerable to any financial shock.  Already 'far from niche' as this FT article correctly states - the demand side of the equation needs some real thought. So too the supply side, regulators need a clear plan that allows the sector to develop in a manner that protects consumers and sustainable business models.