PRODUCTO

Generally, credit-related activities include both consumer credit lending and hire purchase. 89 The former refers to regulated lending activities, including moneylending such as personal loans, credit card lending, overdrafts, pawnbroking, and activities related to buying goods on, for example, hire purchase and conditional sales.90

However, despite the perpetual need for credit that always exists, it is harder for some individuals and households to obtain credit from banks than for the wealthier group. It is ironically said that those who need credit the most are often among the least creditworthy of the would-be borrowers.91 This is the case in both the UK and China. Both countries share the problem of financial exclusion in the area of consumer credit. In the UK, there are mainly two groups of people who have limited access to mainstream credit, one is affected by low- income and less- stable personal financial status, and the other is influenced by previous poor credit

86

Carruthers and Ariovich (n 75) 84.

87

Ibid.

88

Ibid.

89

FSA, ‘Consultation Paper 13/7, High-Level Proposals for an FCA Regime for Consumer Credit’ (2013). Ch 2.

90

Ibid.

records or a history of bad debt.92 In China, the low- income factor has the highest negative influence on this issue, as the majority of low- income people live in rural areas or are rural migrant workers, who not only have a limited income, but also tend to have no credit histories.93

This exclusion is reflected in figures, for instance, 1999 OFT research shows that although the majority of UK households have access to mainstream consumer credit, 33% of the total population in the UK have no access to ‘high street’ credit from a mainstream provider.94 It was found that the use of high street credit was strongly related to household income.95 A survey undertaken for the UK government found that 26% of households had no credit facilities in 2002.96 The figure in the Eurobarometer data is 30%.97 This figure is, however, criticized for over-estimating the condition,98 as credit might not be needed since savings could be used. However, it is admitted that there is currently still a gap between the mainstream credit market and some potential borrowers. Data obtained in 2012 found that 7 million low-income people in the UK were affected by this problem and had to use high-cost credit.99

It is unfortunate that data on people excluded from mainstream credit in China are unavailable from the CBRC or the PBoC. Nevertheless, one can still deduce some observations from the continual attempts by the Chinese government to facilitate rural small personal loans, as most of the official attempts are concentred on rural credit markets. In addition, CGAP research in which an indirect calculation of the proportion of rural households that have credit from formal providers was made on the basis of lenders’ data and total number of rural residents100

came to the conclusion that 58% of total rural households have a loan from a commercial bank and RCC.101 However, the research also admits that the real percentage should be

92 _{Kempson and others (n 5) para 3.120.} 93 _{Sparreboom and Duflos (n 64) 11.}

94 _{OFT, ‘The Consumer Survey: Appendix 4 of Vulnerable Consumers and Financial Services’}

(1999).

95

Ibid.

96

Elaine Kempson, ‘Over-Indebtedness in Britain: A Report to the Department of Trade and Industry’ (2002).

97

Elaine Kempson, Mark Crame and Andrea Finney, ‘Financial Services Provision and Prevention of Financial Exclusion: Eurobarometer Report’ 14.

98

Ibid.

99

Colin Purtill, John Cray and Cath Mitchell, ‘DWP Credit Union Expansion Project Project Steering Committee Feasibility Study Report’ (2012) para 3.1.

100

Sparreboom and Duflos (n 64) 23.

significantly lower, considering the number of people who do not want to borrow money from a bank.102 Although the figure is only meaningful in a limited sense, the remaining group of people who are unable to obtain credit from banks but, in fact, have such a demand are the most vulnerable in this context.

However, it is important to note that only a few people are completely denied any kind of credit available in the market; even those with a lower income and poor credit records are taken into consideration.103 This is because there are plenty of substitute products available from subprime lenders; people who are ineligible for mainstream credit could still turn to the alternative credit market, although with less favourable conditions and higher interest rates. The adage ‘the poor pays more’ exists in this circumstance, since lenders have to cover the default risks of high-risk but less creditworthy borrowers.104 In the UK, sub-prime lender includes payday lenders and pawnshops.105 In China, they include loan companies and pawnshops, who are privately invested and lend at higher interest rates.106 Beside the ‘regulated’ moneylender, there are also underground, unlicensed lenders who lend at even higher rates.107

However, using alternative ways of lending should not become the ideal solution for financial exclusion, considering the high interest rates and fees of these moneylenders. Economic status is not a fair reason for rationalising the high interests paid by vulnerable customers. Moreover, many have criticized subprime lenders for specially targeting vulnerable people and encouraging them to roll over their loan, which will trap the borrower in debt.108 This is the problem of credit being too easily accessible, rather than too difficult to access, which often causes indebtedness problems.109

102 _Ibid.

103 _{Kempson and others (n 5) para 3.119.} 104

Hubbard (n 47) 291.

105

Kempson and others (n 5).

106

Cheng and Wu (n 70).

107

Department of Trade and Industry, ‘Illegal Lending in the UK’ (2006).

108

Marie ke Bos, Susan Payne Ca rter and Paige Ma rta Skiba, ‘The Pa wn Industry and Its Customers: The United States and Europe’ (2012) Vanderb ilt University Law School Working Paper; Christopher L Peterson, ‘Usury La w, Payday Loans, and Statutory Sleight of Hand: Salience Distortion in A merican Cred it Pricing Limits’ (2008) 92 Minnesota Law Rev iew 1116; Todd J Zywicki, ‘Consumer Use and Government Regulation of Title Pledge Lending’ (2010) 21 Loyola Consumer Law Review 425.

In this sense, being excluded from credit actually refers to ‘being excluded from mainstream credit’.110

Any discussion about ‘financial exclusion in respect of consumer credit’ must be located in this context. Only affordable credit that is available in a responsible manner to vulnerable customers could relieve people’s financial stress, rather than high- interest, subprime loans from payday lenders. The type and amount of consumer credit therefore has two features: (i) the amount of the loan should be small, and (ii) the loan should be affordable.111 This is not only to ensure banks’ profit, but also to ensure repayment can be made and does not ‘trap’ borrowers in debt.

1.3.3 Reasons for being excluded from mainstream credit: