ClearScore, the financial services marketplace, is developing new debt consolidation loan technology to support financially vulnerable people in the UK, after securing funding from Fair4All Finance.
The new loan proposition, dubbed ‘Clearer’ by ClearScore, enables direct settlement of consumer debts, unlike many other debt consolidation loans, eliminating the risk that the funds are not used to pay off existing credit cards and loans.
It hopes that rolling out this debt consolidation proposition at scale will significantly expand access to loans, reduce interest rates paid by borrowers and reduce risk for lenders. Ultimately, this will help hundreds of thousands of borrowers, including people in financially vulnerable circumstances.
One major challenge facing the debt consolidation loan industry is that lenders don’t have a way of sending money directly to creditors to pay off a customer’s debts when they provide debt consolidation loans.
Because of this, lenders must assume that the customer will spend at least part of the money rather than pay off their other debts. This leads to ‘double counting’ in the underwriting process, which affects affordability assessments.
From a customer perspective, the current debt consolidation process risks them falling further into debt if they don’t repay their existing credit cards and loans.
Clearer by ClearScore mitigates these drawbacks, with the financial services marketplace estimating that the proposition can boost debt consolidation by 20 per cent which would mean up to an additional 160,000 consumers gaining access to a loan by 2028.
Lenders including Abound, Hastings, Loans by Mal, Oakbrook Finance and Plend are the first ClearScore partners to have committed to using the technology in the ClearScore marketplace once fully developed.
‘Fair and affordable credit is a vital safety net that many can’t access’
The £3.4million funding, linked to Fair4All Finance’s ‘consolidation lending pilot’, will fund development costs to build an automated and scalable debt consolidation solution which can be used both on the ClearScore marketplace as well as white-labelled for third-party online marketplaces and for lenders to use in their direct channels. ClearScore also plans to promote its use for people in financially vulnerable circumstances in the UK.
Part of the Fair4All Finance funding is also intended to reduce the cost of lending to financially excluded people through support with loan fees for specific lenders, resulting in an expected additional £500million of lending across an estimated 45,000 debt consolidation loans.
Kate Pender, deputy CEO of Fair4All Finance, also commented: “We’re delighted to be working with ClearScore on their new Clearer proposition and also with the lenders who use it to reach people in financially vulnerable circumstances. With millions of people financially excluded in the UK, fair and affordable credit is a vital safety net that many can’t access.
“Debt consolidation lending in particular is a great solution for the cost of living crisis. It can reduce people’s monthly outgoings and also cut the amount of interest they have to pay overall. This direct settlement technology will ensure more people are able to access a consolidation loan, improve their creditworthiness and steer clear of problem debt.
“We look forward to seeing how Clearer can scale over the coming years and help people in financially vulnerable circumstances pay materially less for their existing debt.”
Ensuring good consumer outcomes
ClearScore originally developed the Clearer direct settlement technology in 2023 and worked with personal loans provider Abound on a pilot project to build out the proposition. The pilot successfully proved that direct settlement of consumer debts helps consumers who are currently financially excluded to access debt consolidation loans and helps consumers get better interest rates, as well as preventing them from falling further into debt.
Andy Sleigh, COO of ClearScore
Andy Sleigh, COO at ClearScore, said: “This funding represents a significant step forward for the expansion of debt consolidation lending in the UK. Our model suggests that many thousands of additional borrowers will be able to access a debt consolidation loan within the next few years, with our users experiencing an improvement in their creditworthiness and reducing their level of indebtedness.
“This kind of impact on financial mobility cannot be understated and aligns perfectly with the FCA’s focus on increasing access to affordable credit and good consumer outcomes as part of Consumer Duty.”
ClearScore’s solution is built to be robust and scalable, using the latest cloud-based technologies. ClearScore makes it simple for lenders to integrate with its platform via a single API, enabling lenders to offer Clearer quickly and easily within a matter of weeks. Clearer encrypts data at the point of collection with a highly automated solution, using bureau data to surface existing debts, which minimises user input and error.
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