UK Credit Technology Firm Raises Concerns Over £174 Million in Monthly Loans to Gamblers
UK-based credit technology firm, Abound, has raised concerns about financial institutions granting loans exceeding £174 million per month to individuals who are spending a significant portion of their income on gambling activities. The company’s report, which utilized artificial intelligence to analyze financial transactions over a six-month period, revealed that lenders may inadvertently worsen gambling issues by extending credit to individuals with frequent gambling habits.
Abound’s analysis, based on open banking data, provided comprehensive insights into applicants’ spending habits. Debt charity StepChange responded to the findings, suggesting that lenders could make gambling problems worse by providing credit to individuals who consistently allocate funds to gambling accounts or use them for bets at physical bookmakers.
In response to these concerns, Abound has implemented stringent measures to mitigate the risk. The company now rejects loan applications from individuals who deposit more than 30 percent of their income into gambling accounts over an average of six months. Additionally, individuals who deposit more than 100 percent of their income in any given month during the same period are also turned down. These criteria have resulted in the rejection of approximately 29 percent of loan applicants.
Abound’s approach highlights a gap in traditional credit assessment methods, which often do not incorporate open banking data analysis. As a result, individuals who pose a higher risk due to their gambling habits may be approved under conventional credit checks.
Extrapolating from Abound’s scope, where lenders extend £600 million of credit weekly, the company estimates that a minimum of £174 million is being lent each week to borrowers who would not pass Abound’s criteria.
This issue is further complicated by the ongoing debate surrounding the UK government’s postponed proposals to strengthen affordability checks. Current discussions focus on evaluating whether gamblers are overspending, with proposed regulations stating that losses of £1,000 per day or £2,000 over nine months would trigger increased interactions between gambling companies and customers. This may involve requesting bank statements or additional financial documentation to assess the gambler’s ability to handle such losses.
Government ministers argue that these checks would only affect three percent of gamblers, potentially protecting vulnerable individuals from financial ruin. However, some gambling advocacy groups and lobbyists have expressed concerns about potential infringements on civil liberties. They believe that regulations should not impede the majority’s enjoyment to address the problems faced by a minority struggling with gambling addiction.
Peter Tutton, the head of policy at StepChange, emphasized the need for lenders to improve their identification of gambling-related financial harm by implementing more rigorous checks and affordability assessments. He cited previous research indicating that lenders often fail to promptly recognize signs that borrowers are using funds for gambling activities.
Gerald Chappell, CEO of Abound, acknowledged that lenders’ actions are currently legal but stressed that their tools, such as credit ratings, have become outdated in the digital era. These tools struggle to effectively identify financially vulnerable potential borrowers.
Abound’s lending practices shed light on the scale of the issue. The company grants loans to approximately 550 individuals each week, while an additional 230 applicants are declined due to their gambling expenses. Interestingly, 15 percent of these declined applicants had previously secured loans from other sources.
Although gambling with credit cards is already prohibited, little has been done to prevent gamblers from using borrowed funds through alternative means. As the UK grapples with the intersection of lending practices and gambling habits, the potential impact on borrowers and the financial sector is significant.
Finding the right balance between protecting the vulnerable and ensuring that all individuals can responsibly enjoy their activities remains a challenge. It is crucial for lenders to adapt their practices and adopt more effective measures to address the issue of gambling-related financial harm.
