Abound has implemented strict measures to tackle these concerns by refusing loans to individuals who deposit more than 30% into gambling accounts over a 6-month average. Pixabay/Pexels

Financial institutions in the UK could be granting loans exceeding £174 million per month to individuals who are allocating a concerning portion of their income towards gambling activities.

A report conducted by Abound, a credit technology firm, delved into the spending behaviours of loan applicants, utilising artificial intelligence to evaluate their financial transactions spanning six months.

Abound's analysis was grounded in open banking data, enabling a comprehensive understanding of applicants' financial habits. The debt charity StepChange responded to the findings, suggesting that lenders might inadvertently exacerbate gambling issues by extending credit to individuals who frequently allocate funds to betting accounts or use them for wagers at physical bookmakers.

To address this concern, Abound has implemented stringent measures. The company refuses loans to individuals who deposit more than 30 per cent of their income into gambling accounts over an average of six months.

Additionally, individuals who deposit more than 100 per cent of their income in any given month during the same period are also declined. These criteria result in the rejection of approximately 29 per cent of loan applicants.

Abound's approach reveals a gap in traditional credit assessment methods, which often do not incorporate open banking data analysis. Consequently, individuals posing a higher risk due to their gambling habits might be approved under conventional credit checks.

Extrapolating from Abound's scope — where lenders extend £600 million of credit weekly — the company approximates that a minimum of £174 million is being lent each week to borrowers who would not pass Abound's criteria.

The ongoing debate surrounding the UK government's postponed proposals to reinforce affordability checks adds complexity to this issue. The current discourse emphasises evaluations of whether gamblers are overspending. Unlike Abound's approach, these checks would centre on losses rather than deposits. This difference is significant, as deposits could be offset by gambling wins.

Proposed regulations dictate that losses amounting to £1,000 per day or £2,000 over nine months would prompt heightened interactions between gambling companies and customers. This could involve requests for bank statements or additional financial documentation to ascertain the gambler's ability to withstand such losses.

Government ministers assert that these planned checks would only impact three per cent of gamblers, potentially shielding vulnerable individuals from financial devastation.

However, some advocacy groups and lobbyists in favour of gambling have voiced concerns about the potential infringement on civil liberties. They argue that regulations should not disrupt the enjoyment of the majority to address the problems faced by a minority struggling with gambling addiction.

Peter Tutton, the head of policy at StepChange, emphasised the need for lenders to enhance their identification of gambling-related financial harm by adopting more rigorous checks and affordability assessments. He pointed out previous research indicating that lenders often fail to promptly recognise signs that a borrower is using funds for gambling activities.

Gerald Chappell, Abound's CEO, acknowledged that lenders' actions are currently legal but underscored that their tools, such as credit ratings, have become outdated in the digital era. These tools struggle to identify financially vulnerable potential borrowers effectively.

He 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's lending practices shed light on the scope of the issue. The company extends loans to approximately 550 individuals each week, while an additional 230 applicants are declined due to their gambling expenditures. Intriguingly, 15 per cent of these declined applicants had previously secured loans from other sources.

Although gambling with credit cards is already prohibited, little has been done to curtail gamblers from using borrowed funds through alternative means. As the UK grapples with the interplay between lending practises and gambling habits, the potential consequences for borrowers and the financial sector are significant.

The challenge lies in striking a balance between protecting the vulnerable and ensuring the rights of all individuals to responsibly enjoy their activities.