Eighteen years ago the Debt on the Doorstep campaign began to tackle extortionate costs imposed by non-bank lenders in the UK market.
As the campaigners for this noted when winning a cap on interest rates a decade later:
The lobby was followed up by a report from Richard Murphy, arguing the case for an interest rate ceiling, based on a forensic analysis of the business model of Provident Financial, and concluding there was prima facie evidence of market failure in the sector.
That report now seems to have disappeared from the web. I have republished it here.
Now comes news that Provident Financial, the subject of that report, is withdrawing from the home credit market. It supplied loans of a few hundred pounds at a time, albeit at extraordinary cost.
I continue to have little regard for the business model of financiers like Provident Financial. But there is a problem now they and Wonga have left the market, and that is in some people accessing credit at all.
It is vital that those on low income with low or no savings have access to credit. The unforeseen can happen to anyone. Being able to replace white goods is, for example, vital to well being, and local authority funds that once made this possible have now all but disappeared as far as I am aware.
I am delighted by the end of exploitation, but not by the removal of credit facilities. A compassionate government would recognise what us happening here as market failure and would examine how state backed lending linked to the benefits system could correct what is a very obvious market failure. The cost need not be significant. The social benefit would be high.
The question is, where is the government?
And the Opposition come to that? Why isn't it in this space, proposing real change for people who need it?
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Local Credit Unions could play a part here?
But only if given secure means for debt recovery which is why a government scheme would be best
Surely the growth in High Cost Credit is in part at least because incomes are declining both in real terms and as a percentage of GDP while the cost of ‘essentials’ is rising faster then the RPI? Many people are no longer able to build up savings to cover things like the washing machine breaking down or a large car repair bill.
While I quite agree that some sort of ‘low cost credit’ would be a good idea its the reason why its needed that needs to be addressed. That means higher wages and benefits and lower housing costs.
Yes, but crises still happen……
You mentioned that
Being able to replace white goods is, for example, vital to well being, and local authority funds that once made this possible have now all but disappeared as far as I am aware.
The difficulty I have with this claim is that that help is available, perhaps not in an ideal way, but it is there. Take this for example
https://www.birmingham.gov.uk/info/20017/benefits_and_support/308/help_in_a_short-term_crisis
Community Support Grants are paid to citizens to meet their immediate needs for essential furniture or white goods
Switching that model to repayable loans as you suggest might be better for these people and help more of them, but there is the counter argument that they shouldn’t have to go into debt to the government at all. Which is more progressive I wonder.
Denying people access to credit is not progressive
Sorry but you’ve lost me.
What i’m inviting you to consider is two options where you can assign resources to give people grants or loans. In the case of loans you might be able to give more of them assuming you can reasonably expect repayment (but the neoliberals will say that the people best able to work out if someone can repay is people with skin in the game, but there you go). You would also have to assign resources to collection and enforcement.
So this brings in the Tom Sowell question of ‘compared to what?’
You say it is not progressive to deny access to credit. It’s a reasonable view of course. But compared to what?
For a given amount of resources is it then less progressive to deny access to grants? which is currently what’s being offered despite you saying that you believed otherwise.
And tell me the conditions for the grant and the number given. Plus the delay
Then tell me what is being offered
Yes!
But hang on – they’d be crowding out the ‘poor put up on’ private sector.
Aaaaah………..bless.
If I were to make a proposal, we have the Help to Save Scheme so what about something similar for borrowing?
Open to anyone on any benefit, including child benefit possibly with the ability to borrow up to a certain level almost automatically and over that figure on application?
Let me muse on that….
Richard, forgive me for repeating my comment on another thread, but it is a proposal I think should be considered; because it allows co-ordinated direct public service contact with people who need help, who often live in forgotten communities. I would also claim it is germane to the issue you have raised. I would not repeat it if I did not think it worth airing, at least.
After 140 years of doorstep lending Provident Financial is pulling out. Presumably it will sell on its book. Here I think there should be a new subsidiary of the Scottish National Investment Bank to acquire (at the going rate) the Provident Financial Scottish book. Why? In order first, to ensure debts are not simply continually sold on until they end in the hands of loan sharks. Second to place a realistic ceiling on rates charged, and the terms; altering terms that may prove impossible for families or individuals obviously in difficulty, to meet; this is not a matter of objective rational choices or ‘fault’; it is a matter of the consequences that follow, to the borrower, and the community.
Third, for the new Public Bank to play a co-ordinating role with a range of social and welfare services, both Government and (for example only) Citizens Advice, as well as social services to help people plan their way out of difficulty without losing their home, or require to use food banks. This should also help to build back contacts and services with people, families and even communities that are detached from help and alienated. We must design usable, practical, immediately available services to break dangerous cycles of want or poor judgement that serve only to destroy people, families and communities.
I agree with you
I’m sure it will be happy to continue with Vanquis (39.9%), Moneybarn (31.9%), Satsuma (133.1%) and Provident Personal Credit (112%)……. So, just getting out of having to pay people to go door-to-door (2500 “jobs” lost) .. but then, their collection agents had become a source of income to others, by permanently borrowing money off them by force (but the agents still had to pay the stolen money back!)