Uncovering hidden debt

• Context
• The study
• Key findings
• Points to consider

Context

Problem debt is extremely damaging and can ruin lives, but money owed informally to friends and family or to illegal lenders is not obvious on bank statements and forms used by debt advisors, so can remain hidden. It can be hard for people to discuss this sort of debt, especially where challenging family relationships, exploitation or crime are involved, making it difficult for researchers to assess the impact of informal and illegal lending. Despite this, there is evidence that this type of debt is increasing, that loan sharks are finding innovative new online ways to exploit people and that the COVID pandemic has driven more people into problem debt. This research is important in uncovering the informal and illegal lending arrangements that money advisers are seeing in their engagement with clients.

The study

The research was conducted by the Centre for Social Justice (CSJ), an independent think tank focused on addressing the root causes of poverty. The CSJ carried out five virtual focus group sessions with several hundred money advisers based in communities in England across the South-West, North-East, West and the Midlands, and Wales between October 2020 - January 2021.

Key findings

The findings are in two sections: informal lending and illegal lending

Informal lending:

• People don’t consider borrowing from friends and family ‘real debt’
• But informal lending comes with a strong moral obligation to repay
• Informal debt is typically microlending – small sums and often £5 to £10
• Borrowing is typically to cover essential living expenses
• If people have problems repaying it can damage their relationships
• People can also get into debt by being guarantors for friend or family borrowing – this process can be coercive

Illegal lending:

• Loan sharks have diverse and adaptive business models but are often community based and locally focused
• Consequences for defaulting on loans are harsh and people are fearful
• This fear can prevent people from trusting advisors and revealing information about the illegal money lender

Points to consider

• Methodological strengths/weaknesses: Very little information is given about the focus groups other than that they were online. It is not really clear whether there were five sessions in total or five per region and it is not clear how many advisors attended each session. One limitation is that the research only included advisors, so the clients’ stories have been reported second hand. Clients may have many other experiences that they don’t report to advisors. However, the shame and fear associated with debt would make it hard for researchers to approach clients directly so, given that advisors can build trust, this is a reasonable way of accessing this information.
• Applicability: This report will be of interest to anyone working with people in poverty and especially to government, regulators, policy makers and support agencies. The report would also be of interest to the police in that it uncovers methods used by illegal lenders and to financial institutions looking to provide support to customers in debt.
• Relevance: As problem debt grows, this study is highly relevant and important.
• Generalisability: Qualitative research isn’t intended to be generalised to a wider population. The findings are aimed at uncovering hidden issues and increasing understanding rather than establishing the extent to which these issues exist.