Financial institutions in the UK may be lending more than £174m a week to people who are using a risky proportion of their income on gambling, an analysis of the spending patterns of loan customers suggests.
The credit technology firm Abound looked at the open banking data of people who applied for its loans and used artificial intelligence to assess all their financial transactions over a six-month period.
The leading debt charity StepChange said the results suggested lenders could be unwittingly fuelling gambling problems by extending credit to people who deposited much of their money in betting accounts or used it to wager in high street bookmakers.
Abound refuses anyone who deposits more than 30% of their income into gambling accounts on average over six months, or anyone who deposits more than 100% of their income in any one month during the period. It said it turned down about 29% of loan applicants on these grounds.
The firm said these customers would not have been identified as risky borrowers by more traditional credit checks used by lenders who did not routinely analyse open banking data.
Based on Abound’s target market in which lenders extend £600m of credit a week, the company estimated that at least £174m was being lent each week to people who would not have passed its own checks.
Debate continues over the government’s much-delayed proposals to toughen affordability checks to determine whether gamblers are spending beyond their means. Unlike Abound’s vetting method, such checks would be based on losses, rather than the amount of money deposited into an account, which can be offset by betting wins.
Losses of £1,000 a day, or £2,000 over nine months, would trigger enhanced interaction by gambling firms, with customers potentially asked to hand over bank statements or other information to show they can afford losses on that scale.
Ministers say the planned checks will only affect 3% of gamblers and could prevent vulnerable people being plunged into financial ruin.
Some pro-gambling campaign groups and lobbyists have questioned the impact on civil liberties and argue that people’s enjoyment should not be disrupted for the sake of those suffering from a gambling problem.
Peter Tutton, the head of policy at StepChange, said: “Previous research on the experiences of StepChange clients found that lenders are not always quick enough to spot warning signs that someone is borrowing to fund gambling.
“It’s important that lenders continue to evolve their approach to identifying gambling harm by adopting stringent checks and affordability assessments.”
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Gerald Chappell, Abound’s chief executive, said: “Currently, lenders aren’t doing anything wrong. But the tools they are using, like credit ratings, are outdated and unable to identify many financially vulnerable potential borrowers in the online era.”
Abound said it lent to 550 people every week but declined a further 230 on the basis of gambling spending. Of those who were declined, 15% had previously been able to get loans elsewhere.
Betting with a credit card is already banned but there has typically been little to stop gamblers spending money obtained via other forms of borrowing.
This article was amended on 29 August 2023 to correct the figure in the headline and first paragraph from £174m a month to £174m a week.
