Introduction

Following evidence of consumer harm, Buy Now, Pay Later (BNPL) regulation came into force on 15 July 2026, requiring lenders to perform creditworthiness and affordability assessments. This report investigates whether such consumer protections lead to “unfair exclusion” of low- to middle-income (LMI) households. While organisations like Fair4All Finance warned of a potential “credit cliff-edge” where up to 30% of current users might be rejected, empirical evidence suggests that credit access remains high. The study indicates that the primary challenge is not the scarcity of credit but the prevalence of unsafe, unaffordable lending within the market.

Data and methodological framework

The research utilises five waves of the Bank of England/NMG Household Debt Survey, spanning from September 2023 to March 2026. The core sample consists of 12,712 survey responses from 8,487 LMI households, defined as those in the bottom half of the gross income distribution. The analysis applies a “cost-of-living floor” to measure essential expenses, incorporating actual housing costs, ONS energy expenditure averages, and Standard Financial Statement benchmarks from the Money and Pensions Service (MaPS). This methodology allows for the calculation of “budget sacrifice,” where a household gives up 5% or more of its essentials budget to service credit repayments.

The reality of credit use

Credit access is not scarce amongst LMI households; approximately 71%, or 9.97 million households, have engaged with consumer credit at some point over the past two and a half years. However, nearly half of current credit-holding households—around 3.5 million—cannot afford both their essential living costs and credit repayments. For this group, the median budget shortfall is approximately £7,600 per year, or £633 per month. For many, this is a persistent issue; 73.7% of those in shortfall at one survey wave remain in that position six months later.

The report identifies 1.5 million households that are persistently unable to meet essential costs while making deep sacrifices to service consumer credit. These households carry an estimated £7 billion in debt. Furthermore, approximately 1.15 million households were extended new or additional credit while already in persistent shortfall, taking on at least £1.97 billion in new debt. Most of this potentially irresponsible lending occurred through regulated products, including credit cards (42%), overdrafts (34%), and personal loans (19%).

Deconstructing exclusion

Analysis of the 3.4 million non-mortgagor LMI households without consumer credit reveals that 41% are “persistently cushioned,” with comfortable disposable incomes and a median of £50,000 in savings. A further 23.7% are “persistently unable to afford credit,” as their incomes fall short of essentials by more than £6,000 annually. Only 1.21 million households sit in an “in-between” group where product design determines eligibility. Depending on the loan size and term, between 262,000 and 626,000 households would fail a standard affordability assessment. This suggests that exclusion on affordability grounds is a real but narrow phenomenon often influenced by high-cost, short-term lending models.

Outcomes

Credit use is associated with substantially worse financial outcomes, even when controlling for disposable income and savings. Credit holders have approximately 1.7 times the odds of household-bill arrears and more than twice the odds of rent arrears compared to non-holders. This trend is driven by a “disciplinary effect” where borrowers prioritise credit repayments to preserve credit scores, often at the expense of essentials. Approximately 6.4 million adults in Great Britain report cutting back on necessities to maintain their scores. This transfer of risk effectively moves the cost of financial hardship from lenders onto landlords, utility companies, and local authorities.

Conclusions and recommendations

The report calls for the Financial Conduct Authority (FCA) to strengthen affordability rules and require lenders to explicitly test for established patterns of financial difficulty. Lenders should be required to publish product designs that avoid extracting revenue from borrowers in distress. For the financial inclusion sector, funding from Dormant Assets and Fair4All Finance should focus on interest-free alternatives, such as credit unions and Community Development Finance Institutions (CDFIs). Finally, the government is urged to reform the insolvency framework and address the underlying inadequacy of household incomes through social security and wage improvements.