Leeds City Council is helping offer people in deprived areas an alternative to paying crippling interest rates to unscrupulous money-lenders. Nicola Carroll reports
If you are groaning under the weight of post-Christmas credit card bills, spare a thought for those who don’t have access to mainstream financial services.
Doorstep lenders make a point of targeting people who are struggling to buy presents for their kids in the run-up to the festive period. And they will be knocking on doors demanding grossly-inflated interest payments around about now.
Helen Sztencel, a young single mother from the Seacroft area of Leeds, who owed £10,000 at one point, says: ‘Moneylenders make it easy to get into debt, but when I didn’t have the money to pay them, the interest rates got higher…
‘Myself – and my son – had to hide when two burly men came knocking at the door.’
Ms Sztencel managed to deal with the problem by accessing an affordable loan from the local credit union, and now has a job with Sure Start. Others are not so lucky. A report by charity Save the Children revealed that 2.3 million people on low incomes are taking out loans with interest rates as high as 183% APR. Jason Strelitz, author of Robbing Peter to pay Paul, says: ‘Doorstep lenders exploit poor families’ inability to get credit from more mainstream lenders.’ The Government is providing £3m for specialist teams to crack down on loan sharks, who use intimidation and violence to extort an estimated £120m a year, according to official research. Illegal loan sharks are rare, however, in comparison with doorstep lenders operating within the law, whose customers repaid around £1.9bn in 2005 alone. Leeds City Council – one of three authorities to have Beacon status for financial inclusion – estimates that £3.4m loaned to people on low incomes in the first year of Leeds City Credit Union’s Handiloan scheme would have cost an extra £1.8m in interest to doorstep lenders. ‘This money, which would have otherwise disappeared, is now retained in the local economy,’ according to David Roberts, senior policy and information officer, who co-ordinates the council’s financial inclusion policy.
The strategy focuses on support for the credit union set up in 1987 for council staff, which is now open to anyone who lives and works in the city.
Two-and-a-half years ago, the council and credit union targeted the most deprived areas in Leeds. Membership has risen from 11,000 to 20,000, and the credit union’s branch network has expanded from two to 10, with access via council one-stop shops.
Most of these new members did not previously have access to bank accounts or affordable credit – banks are unlikely to have branches in deprived areas, make small loans or lend to those with no credit rating.
Whereas people can end up paying back five times what they borrow from doorstep lenders, Leeds Credit Union charges 26% – which covers the higher level of risk associated with such lending. ‘Some people have managed to save for the first time because their loan repayments have been reduced so much,’ says Mr Roberts. Work with the credit union is part of the local authority’s wider approach to financial inclusion, which includes debt counselling, financial education for children, and action against loan sharks, and involves around 50 local partners.
The Government’s Financial Inclusion Action Plan has provided £38m over the next three years to scale up lending from organisations such as credit unions nationally.
And banks have committed to help increase the supply of affordable lending through the third sector in the 25 local authority areas where there is the biggest mismatch between supply and demand.
Recent announcements from the Treasury also mean credit unions may be reformed to allow them to be used more widely and, for example, enable regeneration funding to be deposited with them.
Abbie Shelton, policy officer at the Association of British Credit Unions (ABCUL), tells The MJ: ‘Credit unions are a way of recycling money locally.
And local authorities are in a unique position to support their credibility and encourage access through departments such as schools, housing and social services.’
ABCUL is working to improve the governance of credit unions and Ms Shelton says councillors’ skills are useful on their boards. While the real problem is obviously not having enough cash in the first place, affordable credit is at least a better alternative than having to hide when the burly moneylenders come calling. For further information on local authorities’ work with credit unions, visit: www.abcul.coop w
Doorstep lenders make a point of targeting people who are struggling to buy presents for their kids in the run-up to the festive period. And they will be knocking on doors demanding grossly-inflated interest payments around about now.
Helen Sztencel, a young single mother from the Seacroft area of Leeds, who owed £10,000 at one point, says: ‘Moneylenders make it easy to get into debt, but when I didn’t have the money to pay them, the interest rates got higher…
‘Myself – and my son – had to hide when two burly men came knocking at the door.’
Ms Sztencel managed to deal with the problem by accessing an affordable loan from the local credit union, and now has a job with Sure Start. Others are not so lucky. A report by charity Save the Children revealed that 2.3 million people on low incomes are taking out loans with interest rates as high as 183% APR. Jason Strelitz, author of Robbing Peter to pay Paul, says: ‘Doorstep lenders exploit poor families’ inability to get credit from more mainstream lenders.’ The Government is providing £3m for specialist teams to crack down on loan sharks, who use intimidation and violence to extort an estimated £120m a year, according to official research. Illegal loan sharks are rare, however, in comparison with doorstep lenders operating within the law, whose customers repaid around £1.9bn in 2005 alone. Leeds City Council – one of three authorities to have Beacon status for financial inclusion – estimates that £3.4m loaned to people on low incomes in the first year of Leeds City Credit Union’s Handiloan scheme would have cost an extra £1.8m in interest to doorstep lenders. ‘This money, which would have otherwise disappeared, is now retained in the local economy,’ according to David Roberts, senior policy and information officer, who co-ordinates the council’s financial inclusion policy.
The strategy focuses on support for the credit union set up in 1987 for council staff, which is now open to anyone who lives and works in the city.
Two-and-a-half years ago, the council and credit union targeted the most deprived areas in Leeds. Membership has risen from 11,000 to 20,000, and the credit union’s branch network has expanded from two to 10, with access via council one-stop shops.
Most of these new members did not previously have access to bank accounts or affordable credit – banks are unlikely to have branches in deprived areas, make small loans or lend to those with no credit rating.
Whereas people can end up paying back five times what they borrow from doorstep lenders, Leeds Credit Union charges 26% – which covers the higher level of risk associated with such lending. ‘Some people have managed to save for the first time because their loan repayments have been reduced so much,’ says Mr Roberts. Work with the credit union is part of the local authority’s wider approach to financial inclusion, which includes debt counselling, financial education for children, and action against loan sharks, and involves around 50 local partners.
The Government’s Financial Inclusion Action Plan has provided £38m over the next three years to scale up lending from organisations such as credit unions nationally.
And banks have committed to help increase the supply of affordable lending through the third sector in the 25 local authority areas where there is the biggest mismatch between supply and demand.
Recent announcements from the Treasury also mean credit unions may be reformed to allow them to be used more widely and, for example, enable regeneration funding to be deposited with them.
Abbie Shelton, policy officer at the Association of British Credit Unions (ABCUL), tells The MJ: ‘Credit unions are a way of recycling money locally.
And local authorities are in a unique position to support their credibility and encourage access through departments such as schools, housing and social services.’
ABCUL is working to improve the governance of credit unions and Ms Shelton says councillors’ skills are useful on their boards. While the real problem is obviously not having enough cash in the first place, affordable credit is at least a better alternative than having to hide when the burly moneylenders come calling. For further information on local authorities’ work with credit unions, visit: www.abcul.coop w
