Johann Lamont writes about the necessity of fighting the legal loan sharks who prey on the vulnerable poor.
Johann Lamont MSP is running for leadership of Scottish Labour
Silverburn is one of the largest shopping centres in Scotland. It is also just around the corner from my constituency office.
In amongst all the usual high street names and restaurants, the more eagle-eyed shopper will spot something very unusual: Pollok Credit Union.
It is unusual to find a mutual organisation offering affordable loans amidst an oasis of capitalism, but I think the message that sends is a very powerful one: there is another way of doing things; a cheaper, more sustainable way.
Credit unions do amazing work – they offer a lifeline to people who are ignored by the ‘traditional’ banking sector, provide stability at a time of uncertainty and they offer people a fair deal.
It makes me immensely proud to have such a successful example of the credit union movement in my constituency. But too many people seem to think that the only way to access credit is by going to high-cost lenders.
If you’ve ever watched daytime TV, you will have seen adverts for so-called payday lenders. These internet lenders purport to offer a quick and easy solution to temporary cash flow problems. ‘Give us a call and we’ll sort you out. No strings attached,’ they say, but only in the imagination of a marketing executive could this ever be true.
For instance, Provident charges an average of 272 per cent on loans, while others charge even more. These companies are effectively legal loansharks, dragging people into a damaging spiral of debt.
They prey intentionally on people who struggle to make ends meets – 46 per cent of people who use payday lenders have incomes of less than £16,000; 10 per cent have incomes of less than £11,000.
Something urgently needs to be done to tackle the damaging effects of high-cost lending. That responsibility is incumbent on every tier of government.
Labour and Co-operative MP Stella Creasy has been leading the way on this important issue at Westminster.
Earlier in the year, she made proposals to cap the cost of this type of lending. The coalition government refused to countenance the idea. They did not want, they said, to intervene in the market; and, at any rate, capping profits would force these lenders to find other ways of making money from people.
This kind of cop-out is completely unacceptable. Making an ideological decision not to improve regulation – even at the cost of financial misery for many people – is a moral outrage.
The Westminster government should think again about capping the cost of high-cost lending, and it should do so quickly. The Scottish government has the ability to undermine legal loan sharks by encouraging the use of credit unions like the one in Pollok.
I would welcome the implementation of the Association of British Credit Union’s suggestion that all public sector workers are given access to credit union membership via payroll deductions. It is equally important that financial education is part of Scotland’s school curriculum.
Local government can also play its part in tackling high-cost credit. There are high streets across Scotland which are peppered with shops offering a quick buck at extortionate rates. But councils could encourage credit unions on to the high street by offering them rates relief.
There are simple, practical things that can be done to control high-cost lending.
No one should be put in the situation where they feel forced to enter into a viscous circle of debt.
Instead, they should be encouraged to seek out community-based, fair-minded and honest alternatives like credit unions.
See also:
• Need for affordable credit ‘big bang’ to aid low income communities – Kevin Gulliver, June 27th 2011
• 4,214 per cent APR. Interested? – Byron Orme, April 16th 2011
• Payday lenders: the need for urgent action – Damon Gibbons, January 30th 2011
• Time to muzzle the legal loan sharks – Lisa Nandy, December 12th 2010
• MPs call for end to loan sharking – Joe Cox, September 8th 2010
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75 Responses to “Government needs to find a way to tackle high-cost lending”
Newsbot9
Oh yes, it’s so terrible that kneebreakers and debtors prisons are out of work!
Anonymous
So you want the loan shark? I’ve always thought that Labour was full of people whose real aims are to screw people over.
Look at the nationalised banks and their APRs for unofficial overdrafts. Makes the average loan shark blush.
What is needed is proper regulation and less of it.
1. Reductions in regulations for setting up credit unions. Micro credit can work in the UK as well as in India.
2. Caps on charges. That applies to pensions, as well as loans.
However, there does need to be consideration. At what level do you set the caps. If you set it too low, then people won’t get credit at all. It won’t be economical. Now in most cases that’s a good thing. No loans and they won’t get into debt. Debt is the killer because it compounds up.
Newsbot9
Yes, I’m sure you fantasise about the Labour party. I’m an actual left winger, though.
And right, people should starve and freeze because of cash flow problems (often caused by employers). Gotta kill the poor, after all.
Anonymous
It’s the other way. The state is going to take the money from the people who earn it who need to pay for their families to eat, to house themselves, to heat their homes.
After all its got its debts to pay.
All those trillions that have to go to the minority in the state sector.
Pensions that cost 35 times the annual pension when they retire.
You can see it with that nutter Huhne. What better than to get the government to tax those who are poor with higher fuel bills to give to the rich with the PV cells on the roof, manufactured in China.
The reverse robin hood.
Anonymous
You don’t have to be that clever. Look at the APR charged on unofficial overdrafts.
http://www.bbc.co.uk/news/business-16002022
A customer borrowing £100 for 28 days without the consent of Santander would repay £200, for example.
That is the equivalent annualised percentage rate, or APR, of 819,100%.
Barclays would charge a customer using a personal reserve – a pre-agreed emergency borrowing facility – £22 for every five consecutive working days they were in it. This means customers would pay £88 on top of the £100 capital after 28 days – an equivalent APR of 366,000%