Debate on capping doorstep lenders
5th December 2006
Alan Whitehead will be backing the National Housing Federation and Debt on Our Doorstep's call for a cap on the extortionate fees charged by doorstep lenders in a parliamentary debate tonight (Tuesday 5 December).
The Federation, representing England's 1400 non-profit housing associations, has teamed up with fair finance pressure group Debt on our Doorstep to campaign on rip-off lending. Low income customers, including thousands of housing association tenants, are targeted by home credit companies charging sky-high APR rates ranging from 160% to an astonishing 800%.
Housing associations like Testway Housing, based in the Test Valley area of Hampshire, find that doorstep lenders are a blight on their estates. Testway helps its residents to manage their debt problems, and recently supported one tenant who felt suicidal because of the pressure she was under from doorstep lenders to meet repayments. (For full case study see More Information)
The Competition Commission's recent inquiry into the doorstep lending market found that home credit companies are making £100 million a year in excess profits, and overcharge by as much as £25 for an average loan. Although the Commission shied away from recommending price caps, the Federation believes there's a strong case for them to be introduced in this country. We recommend a cap on the total charge for credit, which would penalise exorbitant interest rates as well as back-end charges.
Tonight Alan Whitehead MP will call for a price cap in an adjournment debate in the House of Commons.
Dr Whitehead said:
"It is astonishing that this practice has been allowed to continue, especially when the people forced into this kind of borrowing are often the poorest and most desperate, with no means of rectifying the situation they find themselves in. They then borrow again to pay one debt with another and the situation spirals dangerously out of control, as Testway and many other housing associations working with financially excluded tenants have found. I hope this debate will raise awareness of rip-off lending and point to the possible safeguards such as a cap on loan charges.
"It is also important to understand that the solution is not to prevent people from borrowing money. There will always be times, like the birth of a child, when an initial outlay is needed. What is important is to ensure that this occurs in a way in which the debt can be repaid over time. This is obviously not the case with extortionate lending. It needs to be stopped, and in parallel there needs to be increased access to basic bank accounts and reasonable lending facilities. These go hand-in-hand in increasing financial inclusion whilst moving away from irreversible debt."
David Orr, chief executive of the National Housing Federation, said:
"Housing association tenants will be hit especially hard by doorstep lenders in the run up to Christmas. It's ridiculous that these companies can name their price when lending to the poorest families, and it needs to stop. We believe there's a strong case for a cap on their charges, and are delighted that Alan Whitehead is championing this cause."
Damon Gibbons, chairman of Debt on our Doorstep, said:
"The Competition Commission's recent proposals will take at least 18 months to have any impact. In that time, rip off lenders will continue to exploit the poorest borrowers - creating more misery and hardship. Providing access to extortionate credit is not part of the solution to poverty. It is part of the problem and needs to stop now."
More information
- CASE STUDY - TESTWAY HOUSING
Mrs D was a single mother with four children, one of them six weeks old. She lived on income support, child tax credits and child benefit. Initially she took out a £500 loan from a home credit company, which would cost around £2500 to pay back. She then took out another loan for £500 which would cost her £3000 to pay off. When her baby was born she went to another lender for another £500 loan which would cost £4500 to pay off. Mrs D was borrowing the money to buy household appliances and things for the children; necessities, not luxuries. When the loan companies visited to collect their repayments, she felt under pressure and would pay them instead of her rent. She could see no way out of her situation and became depressed, even attempting suicide. When she got into rent arrears, Testway Floating Support helped her to manage her debts and secured backdated Housing Benefit payments for her. They gave her budgeting advice and arranged for her to pay off her debts at a reduced rate. Ms D was an intelligent woman who felt she had no choice but to borrow from doorstep lenders as there was nowhere else for her to go. She will be paying them off for years to come.
- The National Housing Federation represents 1400 independent, not-for-profit housing associations in England. Together, our members provide 2 million affordable homes for around 5 million people. www.housing.org.uk
- Debt on our Doorstep is a coalition of over 150 organisations committed to campaigning for change, reducing the burden of unsustainable debt amongst the poorest sectors in society, and bringing an end to financial exclusion in the UK.