Need for credit in the interests of the poor

Magic wands don’t come any more expensive. Daytime
television overflows with advertisements promising that, with one
phone call, you can heave yourself out of a financial black hole,
consolidate all your debts and…? A multiplicity of IOUs is
erased, only to be replaced by one enormous commitment taking years
to clear.

This month, the Financial Services Authority, the industry
watchdog, revealed that one in five families is concerned about
loan repayments. Consumer borrowing totals £154bn.

Britain has the lowest standard of consumer protection for the
poor in northern Europe. As a result, the country is a fertile
ground not just for loan sharks but also credit card companies and
banks. The charity, the Consumer Credit Counselling Service gives a
not atypical example of a part-time supermarket till operator
earning £14,000 a year who had acquired 15 credit cards and
racked up £95,000 in unsecured credit.

Eight million people are denied access to pieces of plastic.
Instead, they find themselves in what is known as the “sub prime
market”. They are disgracefully overcharged by companies owned by
the high street building societies and banks. Brighthouse, for
example, owned by finance house Nomura, is a furniture and
television retailer whose annual interest rate is nearly 30 per
cent compared with the bank base rate of 4 per cent. Nine out of 10
customers also take out insurance which allows them to return the
goods if they cannot maintain payments, boosting interest rates to
80 per cent.

The government is considering proposals including tribunals with
the power to rip up unfair loan agreements.

But why place the onus on the individual? Why not insist on an
interest cap? Why not also enlist the banks’ cash and
expertise and seconded staff to ensure that a network of viable
credit unions exists across Britain?

Credit unions work well in Ireland but not here. In three years,
credit unions – charging borrowers no more than 1 per cent a month
– have expanded from 440 to 700, but still offer support to only
300,000. A report by the John Moores University two years ago
criticised government’s lack of imagination in its use of
credit unions. Now, management of debt needs to move far higher up
the social exclusion agenda.

Everyone owes something – but it defies logic to force those on
the lowest incomes to pay the most dearly of all.