The world of high finance can often seem a remote place. A friend once told me that after the financial crash and subsequent fall out that they were frustrated that they couldn’t link the behaviour of capital to the lives of ordinary people. The reason why citizens groups and citizens organising is all the rage at the moment is because it does this very thing – it links the intangible and the remote to the immediate.
After the financial crisis Citizens UK began to hear stories about the increase in interest rates on money loans. More and more stories also emerged about doorstep and other high cost lending. High cost lenders were targeting housing estates with offers of immediate credit at very high prices. Once people took out these high cost loans their problems often become worse and they had to borrow more.
In response, Citizens UK thought that the control of money was a reasonable demand from civil society to the economic crisis and bank bailout. They believed a cap on the cost of lending would help protect low income borrowers from the exploitative nature of unencumbered capital.
The high cost credit market has failed. It has failed to provide low cost borrowing to customers, many areas of the market are uncompetitive and many providers like Provident hold a near monopoly.
Around 3 million people use high cost lending in the UK mainly because they have been let down by high street banks. With overdraft fees being excessive the very high cost certainties of payday lenders, home credit and pawnbrokers can seem attractive. Research carried out by Paul Jones at Liverpool John Moores University, shows that, far from borrowing money to pay for luxury or non-essential goods, people on low incomes need credit just to get by. They know they are paying well over the odds for credit but have no choice but to pay the high prices charged.
High debt repayments affect the quality of life for households. The results are poorer diets, colder homes, rent, council tax and utility arrears, constraints on job seeking behaviour, and poor health, including mental health. All of which present wider economic costs that have to be met by national and local government and create pressure on public services.
But a cap may not solve all the problems. We also need to improve the supply side of credit. More state support should be given to credit unions, CDFIs and of course for a Post Bank.
Labour knew this very well and the last manifesto included a pledge to cap the cost of credit over three years. The coalition has pledged to clamp down on the excessive costs of credit and store cards but not for other forms of credit. We need to keep the pressure up. You can sign the petition here.
Joe Cox is Campaigns Organiser at Compass.
Tags: citizens uk, high cost lending, Joe Cox, legal loan sharking
All very true. The CAB has been warning for years of the behaviour of doorstep and other high-interest lenders, with many people having multiple loans from each. There are also issues around the charges for those using payday loans, or cheque-cashing services.
I can’t help feeling that this issue is going to grow enormously, particularly while those banks that were bailed out at the public expense are now getting away with utterly punitive daily charges to those customers who go even a few pence overdrawn. This leads to a rapid descent into unmanageable debt for those on low incomes, and needs to be urgently addressed.
The failure of legal attempts to address banks’ unreasonable charges some time ago, seems to have led banks to feel that they now have carte blanche to demand completely unreasonable amounts in charges, and this does not seem to be being addressed by government at all at present.
It’s important to understand that every convenience comes with a price. But I agree that there should be new strict regulations for payday lenders and they shouldn’t charge extremely high interest rates. It’s necessary to make using online lending services safer for consumers. But at the same times customers who would like to get payday advance should take responsibility for their actions because no one is forced to take out an expensive loan. There are lots of alternatives and it’s possible to use cheaper options in case interest rates on payday loans are too expensive for you and there’s a risk to get into the debt trap.