Decline of payday lending sees people turn to friends and family

November 23, 2018

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New research identifies need for greater investment in not-for-profit affordable products following tightened payday loan regulation

The project was commissioned by the Carnegie UK Trust and Barrow Cadbury Trust and carried out by Toynbee Hall and Coventry University.

The collapse of the payday loan industry in the UK has led to more people turning to their friends and family for financial support, a new report has revealed.

At their height in 2013 payday loan companies were lending £2.5bn billion to 1.7m consumers in the UK. These numbers fell to £1.1bn and 800,000 consumers in 2016 following the introduction of new regulations by the Financial Conduct Authority. Market leader Wonga went into administration earlier this year, Money Shop stopped issuing cash loans and other payday firms are also experiencing financial difficulties.

Now new research, based on interviews with 80 former payday loan borrowers across the country, has revealed where people who used to borrow from payday companies are getting access to cash.

The most common source of funds has proved to be ‘friends and family’ – with more than a third of those interviewed saying that after failing to access a payday loan, they instead borrowed money from someone they know.

Other actions taken by those declined credit from payday companies included cutting back spending in other areas in order to afford the item they wanted; going without the purchase they had intended to make; or seeking credit from another source. Tellingly, very few of the interviewees were aware of ethical credit alternatives, and only one person had any savings to fall back on.

Douglas White, Head of Advocacy at Carnegie UK Trust said:

“The decline and demise of much of the payday loan market in the UK over the past two years is highly welcome and ensures many people are protected from high cost credit.  It is unrealistic, however, to think that the demand for credit which fuelled the rise of payday loans has dissipated overnight – particularly when the underlying conditions which drove much of that demand remain the same; low wages, heightened job insecurity, significant pressures on the cost of living and the exclusion of millions of people in the UK from mainstream financial services.

“While the growing number of people turning to friends and family for financial help may sound positive, it wasn’t always viewed positively by the individuals who borrowed in this way, it’s questionable whether this is a sustainable or desirable solution to the credit needs of millions of people in the UK. We urgently need to grow the UK’s small, but affordable, not-for-profit alternative credit sector, including CDFIs and credit unions, to ensure everyone has access to the support they need, delivered in a fair and ethical way.”

Clare Payne, Economic Justice Programme Manager, Barrow Cadbury Trust said:

“This research highlights that people will, in the main, not “go without”. In many cases people have already budgeted or reined in spending elsewhere, and don’t have a savings buffer to fall back on when the need for cash, which can hit us all unexpectedly, arises. The need for small sums of credit is acute, and we believe a range of solutions is needed for low income households, from grants to nil interest loans, to an expansion of affordable credit.”

Dr Lindsey Appleyard and Carl Packman the report authors said:

“We explored the lived experience of the impact of high-cost, short-term credit regulation on consumers and whilst we found that the regulation has largely protected borrowers from harm, we still found pockets of poor practice. The FCA needs to ensure that lenders are sticking to the guidelines in practice, and to move to extend the cap on payday loans to other forms of high-cost credit to ensure the sector is reformed in favour of the consumer”

Sian Williams, Director of External Policy and Innovation at Toynbee Hall, said:

“As this research shows, too many people still have nowhere safe and affordable to go when they need to spread an essential cost. It’s crucial that we turn research into action, so we are delighted to be working with the government and other partners to test whether a no interest small loans programme can help people on the very lowest incomes avoid the impossible choice of going without or using high cost credit, both of which undermine their long-term wellbeing as evidenced in this research.”


The report, The Lived Experience of Declined Payday Loan Applicants, outlines a number of recommendations for action by policy makers:

  • Greater investment in developing products and the marketing of social and ethical alternatives
  • Increased regulatory activity to tackle a two-tier payday loans industry so that all lenders are adhering to the FCA
  • Organisations to work together to prevent those with short term cash flow issues from suffering hardship and seeking credit
  • Government, regulators and the third sector to scope the feasibility of a UK No Interest Loans Scheme for those unable to afford credit options even from social lenders
  • Guidance on what ‘good practice’ looks like for friends and family lending
  • For payday lenders to help improve the financial health of customers and potential customers by helping them to rebuild credit scores
  • Guidelines for debt advice charities on specific courses of action for declined payday applicants



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About the research

The research was carried out between January 2017 and April 2018. The first phase took place in England, with 40 interviews largely spread between London and Birmingham and the West Midlands. The second took place in Scotland, primarily in Glasgow.

Copies of the full reports are available here and here.


About Carnegie UK Trust

Carnegie UK Trust

The Carnegie UK Trust works to improve the lives of people throughout the UK and Ireland, by changing minds through influencing policy, and by changing lives through innovative practice and partnership work. The Carnegie UK Trust was established by Scots-American philanthropist Andrew Carnegie in 191

Barrow Cadbury Trust

The Barrow Cadbury Trust is an independent, charitable foundation committed to bringing about socially just change. Its mission is to use all its assets, especially its money, to work with others to bring about structural change for a more just and equal society. The Trust was founded in 1920, by Barrow Cadbury, grandson of John Cadbury, the founder of the family-run Cadbury chocolate, and his wife Geraldine Southall.

The Centre for Business in Society (CBiS), Coventry University

The Centre for Business in Society (CBiS) is the principal research centre within the Faculty of Business and Law at Coventry University. Through understanding and interrogating the impact of organisations’ activities, behaviours and policies, CBiS’s research promotes responsibility and inclusivity, seeking to change behaviours in order to achieve better outcomes for economies and societies. To find out more please visit:

Toynbee Hall

Toynbee Hall, founded in 1884, is a community organisation that pioneers ways to reduce poverty and inequality. Based in the East End of London, we provide free advice and support services which are all geared towards tackling social injustice and improving financial health. Our research looks at communities and groups suffering from financial exclusion, helping us to pilot new ways to deliver financial inclusion services and share our learning with partners and policy makers.