Early warnings of unintended consequences for alternative credit, says Uncle Buck

A new report by Citizens Advice suggests guarantor loans – where family or friends guarantee the repayments if the original borrower fails to do so – carry high risks and that consumers are becoming involved without being fully aware of the dangers.It is thought that more than 50,000 people a year take out such loans.

Guarantors may not always receive all the information presented to the borrower and of the cases investigated by Citizens Advice, 43% of guarantors were unsure of the extent of their responsibilities.

Payday loan issuance has fallen since the FCA regime was incepted and, says Uncle Buck, this increases the potential for consumers to choose alternative sources of finance with potentially lower levels of protection. This is an example of unintended consequences in the new regime, and of the uncertainty in the short term lending market at this time.

Citizens Advice has called on the FCA to make sure that:

  • Guarantors are given a letter of agreement, and a cooling off period
  • Loan providers put a liability warning on marketing material
  • Lenders have to direct borrowers to free independent debt advice.

Uncle Buck supports these proposals to improve clarity and transparency for consumers.