From the letters page of the Guardian this morning:
We write with growing concern that the UK has one of the highest levels of personal debt in the world — in April this year the British people owed over £1,460bn in private debt. Debt has become part and parcel of everyday life — many of us owe money on a credit card, loan or overdraft. Borrowing money can be beneficial, as is the case with student loans, business loans and mortgages. However, there is a tipping point at which borrowing becomes detrimental. Irresponsible lending can cause debts to become unmanageable: yet some loan and credit companies are charging annual interest rates equivalent to over 2,500% (despite the Bank of England base rate being just 0.5%). Borrowing at these rates repeatedly tips customers into inescapable cycles of debt and poverty. High debt repayments are linked to rent, council tax and utility arrears, constraints on jobseeking behaviour, poor diets, cold homes, and mental and physical health problems. This is legal loan sharking, a national scandal which must be stopped. In response to our growing private debt crisis we believe now is the right moment to adopt the policy of lending rate caps for all consumer credit.
Affordable short-term credit is needed more than ever to help make ends meet as people face reduced working hours, stagnant wages, and unemployment. Despite this, because millions are not catered for by many high-street banks, they have no choice but to borrow at usury rates. As a result, those most in need often pay the highest rates to obtain credit. Around 3 million people use high-cost door-to-door loans which often charge £83 in interest and collection charges for every £100 borrowed.
Irresponsible high-cost lending played a key role in causing the worst economic crisis for over 60 years. Financial institutions are now using the economic crisis as a means to again make profit from the most vulnerable in our society.
The government has committed to regulate excessive interest rates on credit and store cards, and yet is paradoxically allowing the much more pernicious practice of legal loan sharking to continue. The only way to stamp out legal loan sharking is by establishing a lending rate cap to cover all forms of consumer credit in order to reduce prices in areas of the market that are not price-competitive. Importantly, a cap needs to be accompanied by increasing access to more affordable, responsible sources of credit. The government should therefore further develop the idea of a "people's bank" using the post office network, and ensure greater support for local credit unions, community development financial institutions, co-operatives and mutuals. Furthermore, all banks should be obliged to provide a universal banking service.
The policy of lending rate caps coupled with increasing access to affordable credit would enable the poorest households to become financially independent, helping to provide a route out of personal debt, encourage saving practices and generate demand for local businesses in our deprived communities. It would also reduce the demand for social and welfare services and therefore relieve pressure on public spending. The government should therefore take urgent action to put an end to high-cost predatory legal loan sharking for good and introduce lending caps to cover all forms of consumer credit. Many countries across the world have shown that such a cap is viable — we need to follow their lead.
Jon Cruddas MP, Neil Jameson Citizens UK, Gavin Hayes Compass,Lisa Nandy MP, Chuka Umunna MP, Caroline Lucas MP, John Hilary War on Want, Martin Horwood MP, Damon Gibbons Debt on our Doorstep, Benjamin Fry, Oliver James Clinical psychologist,David Rodger Debt Advice Foundation, Rev Paul Nicolson Zacchaeus 2000 Trust, Prof Stefano Harney, Prof Richard Wilkinson, Prof Ruth Lister and 87 others at www.endlegalloansharks.org.uk
I was one of the other 87.
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They didn’t explicitly state it, but this is a campaign organised by Compass (“a pressure group focussed on changing Labour”). I think their campaign is right, but they could have had more impact if they had taken the same action when Labour was in power.
@Alex
I was working on this with Church Action on Poverty in 2003
Indeed – I was the first person to expose the true rates of interest charged by Provident Financial – at around 180% apr
All nice and cuddly in principle, quite a different matter when you close those lines of credit and people end up drifting towards genuine loan sharks.
Prohibition doesn’t have a great track record and I wouldn’t expect it to be any better on this matter.
@Paul Lockett
Can you explain to me why libertarianism always seems to require the condoning of abuse of fellow human beings?
Richard,
I’m not condoning anything, just acknowledging way things work in the real world and putting the safety and wellbeing of my fellow human being above dogma.
@Paul Lockett
I’m sorry – that’s just not true
You’re condoning the existing system, which is abusive
Don’t deny what is glaringly obvious, please
And the reality is loan sharks can be kept out of this – low cost micro bank loans are possible – what is needed is the will to ensure they are delivered
The lobbying power of the existing doorstep industry is what stops it – i.e. profit is put before people
And that’s what libertarians always seem to endorse
I repeat – why?
The reality is that what you propose would force many vulnerable people into the hands of loan sharks.
If credit unions and other mutual providers were able to step in and offer credit at lower cost, that would be great (need I remind you that you blocked my comments on one story because I was defending precisely that kind of mutual operation?). The problem is that forcing the existing legal lenders out of the market creates a vacuum which could either be filled by mutual lenders, who are not currently a major force in that kind of low value, high risk, high rate lending, or loan sharks, who are. No responsible person would be prepared to take that gamble with the lives of others.
Trying to ban legal high rate lending would be a selfish, irresponsible, dogmatic act which might satisfy the people pushing for it, but would harm some of the most vulnerable in our society in a way that I and all compassionate people would find unacceptable.
@Paul Lockett
And you ignore the possibility of state support for market entry?
The social fund (as was) has an enormous role to play here – with recovery by deduction from benefits
Why do you ignore the obvious power of the state to meet abuse and market failure?
“And you ignore the possibility of state support for market entry?”
I didn’t so much ignore it as not mention it, because it has no relevance to the point I was making, which was the danger of outlawing high rate lending.
Of course it may be possible to effectively support market entry, but I don’t believe that possibility justifies taking the chance of pushing people into the clutches of loan sharks. These are human beings you are suggesting we gamble with.
Please, put your dogma aside for a second and consider the impact the actions you suggest would have on the vulnerable in our society. Suggesting that market entry be made easier for alternative providers of credit is perfectly reasonable, but suggesting that we pre-emptively outlaw one of the few effective sources of competition for loan sharks, on the assumption that those alternative providers will step in, is socially irresponsible.
“Why do you ignore the obvious power of the state to meet abuse and market failure?”
If I ever do, it’s generally because I see that the state, in cahoots with its corporate cronies, is responsible for the majority of abuse and what is described as market failure.
If a viable alternative is to emerge, I think it’s far more likely to come from the consensual mutual-aid of co-operatives, credit unions and other mutuals, than it is from the corrupt cronyism of the state.
@Paul Lockett
Anyone who can dismiss state activity as corrupt cronyism is not worth debating with and has no opinion of any value in my opinion
So closed a mind is quite absurd
“Anyone who can dismiss state activity as corrupt cronyism is not worth debating…”
Richard, would you seriously seek to deny that politicians have a tendency to work to serve the interests of their sponsors? That would surprise me, especially given the tone of your comment in some of your posts, for instance, the recent piece entitled “Is it surprising that the Tories are lining up to support tax havens?”
“…and has no opinion of any value in my opinion”
Open your mind and judge the points I make on the merit of the supporting argument, rather than a personal dislike of me. You may be surprised.
“So closed a mind is quite absurd”
Maybe so, but your mind is no less closed than mine, it just has the opposite instinctive view of the state.
Back to the subject at hand, having taken at look at http://www.endlegalloansharks.org.uk, I think there’s one very valuable point on there which is well worth considering:
“As banks are lending to fewer customers overall, there is evidence that doorstep and payday lenders are moving up the income scale, leaving a gap where low-income families have no access to credit apart from that offered by loan sharks who do not use contracts, paperwork and are often aggressive when chasing repayments.”
Just one example of the danger I was attempting to highlight.
@Paul Lockett
Oh come on….you argue that people should act in their own self interests all the time as a libertarian and then argue that they should not is a politician
You really can’t have it both ways
I do not agree with your libertarian argument on self interest and so can expect politicians to act selflessly, which I believe quite normal human behaviour, and point out when they breach it
But you argue that when they act as you expect it is cronyism
To call that hypocrisy on your part is being kind to you
As for dislike – I have no dislike of you at all, just your ideas – which is quite different
And I have addressed the issue on loan sharks – a proper state backed system could eliminate them for good
Please open your mind rather than accepting abuse, I’d say
“Oh come on….you argue that people should act in their own self interests all the time as a libertarian”
On what basis are you making that entirely incorrect claim?
@Paul Lockett
If I’m wrong tell me why…
If I incorrectly associate libertarianism with the simple ideas of neo-classical economics do explain
I have erred before
But from all I’ve seen to date the association is strong – so the counter argument has to be convincing and pervasive
“If I’m wrong tell me why…”
Because you claimed that I “argue that people should act in their own self interests all the time” and I have done no such thing. It is a belief that I do not hold and I have never expressed.
That’s is why I asked on what basis you were making that claim.
@Paul Lockett
Well I apologise for bracketing you with what seems to be standard libertarian thinking which you otherwise seem to espouse