Shrinking credit market may put consumer choice at risk

The consumer credit market is shrinking and consumers could face even less choice and reduced availability in future, according to the Finance and Leasing Association (FLA), which today published its latest consumer lending figures.

The secured loan market contracted by 83% in April 2009 compared with April 2008. Unsecured loans (where the customer's house is not used as security) dropped by 45% in value over the same period. Overall, consumer lending by FLA members was down by just under 20%.

The large volume of new consumer credit regulation (both from Brussels and the UK regulators), along with the continued freeze in the wholesale lending markets are combining to put extra pressure on lenders just when they are being called upon to help reinvigorate the economy. The FLA fears that if the market shrinks further there may be less choice for consumers in future, and that some of the most vulnerable may turn to less reputable and unregulated lenders.

Geraldine Kilkelly, Head of Research and Chief Economist, said: "These figures show the continued pressure on the consumer credit sector. They reinforce the need for the Government to take action to make wholesale credit available, including in the non-bank lending market. Without this, the lack of wholesale credit and the torrent of new regulation currently facing the industry pose the real risk that the size of the market will reduce even further, with serious implications for consumers - especially those who are most vulnerable. The Government should take full account of this risk in its forthcoming Consumer White Paper."