Lenders have too much power over borrowers, says report

Over two thirds (68%) of British people think lenders have too much power over borrowers.

The findings come from new online polling conducted by YouGov for the think tank Theos and St Paul’s Institute.

The study, which looks into debt, comes at a time when more than 16 million people in the UK have less than £100 in savings. Personal debt is now at 90% of gross domestic product (GDP), while unsecured debt is at an all-time high.

In the poll, 27% of people who have been in debt in the last two years said that it has badly affected their daily lives, while 33% said that it had a negative effect on their relationships with friends and family.

According to Dr Nathan Mladin, the impact on relationships is of crucial importance when evaluating debt.

“Debt is ultimately a form of social interaction, so much be assessed as such,” he said. “There are debt relations that clearly harm individuals and communities, and others that contribute, directly or indirectly, to their wellbeing.”

The findings come ahead of the launch of a new report into the ethics of borrowing and lending, and its impact on families, communities and nations, titled ‘Forgive Us Our Debts’.

Co-authored by Dr Nathan Mladin of Theos and Barbara Ridpath on behalf of St Paul’s Institute, the report argues that debt must be seen as fundamentally about relationships between debtors and lenders – relationships which need to be reimagined.

Before, a borrower went to their local bank to talk about a loan. Now, however, an agency provides an algorithmic credit score for that borrower, making relationships increasingly distant and anonymous.

The report also draws on Christian ethics with City professionals, academics and representatives of the debt and money advice sectors. It suggests:

• An investigation into greater us of debt mitigation – or forgiveness – done appropriately and without risking the foundations of a financial system.
• The re-establishment of a usury rate, i.e. a level of interest above which rates are deemed exploitative.
• Corporate debt to be put on an equal tax footing with equity, eliminating the tax deductibility of debt and considering the elimination of the tax on corporate dividends.
• More investment in growing the social lending sector
• Increased restrictions on consumer credit advertising
• Rethinking UK University tuition loans including an exploration of the introduction of needs-based financing.

The full report can be viewed here.