Laura Sharman 23 August 2016

24 councils could face legal action over high-interest loans

24 councils could face legal action over high-interest loans image

Residents from 24 different local authorities have mounted legal objections to the use of the controversial high-interest Lender Option, Borrower Option (LOBO) loans by councils.

The loans came to prominence after a Channel 4 Dispatches programme revealed that around 240 local authorities had taken up to £15bn in LOBO loans from private banks, which charge interest rates of more than 7% in some cases.

An inquiry into the loans also revealed some councils had paid brokerage fees of £25,000, compared to £75 for the equivalent Public Works Loan Board (PWLB) loans.

The legal objections against LOBO loans have been lodged by residents under the 2014 Local Audit and Accountability Act over the past two months, claiming the loans are ‘irrational’ expenditure and therefore unlawful.

Researcher at Debt Resistance UK (DRUK), Joel Benjamin said: ‘UK local government finance is completely unregulated, so it’s great to see local residents around the country taking action, demanding accountability over how billions of pounds of public money is spent.

‘For the past six years, councils have been passing down savage cuts to the poorest in society, using bailiffs to violently recover debts from the working poor, claiming they have no other option.’

Debt Resistance UK says a ‘significant’ proportion of LOBO loans should be cancelled so councils can refinance at lower rates of interest. It is also calling for full transparency over how public money is being spent in the form of these loans.

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