Yesterday Jo Swinson spoke about payday loans on camera to The International Business Times. We cannot embed the video on Lib Dem Voice, but you can watch it here.
She said that she and Vince Cable would be meeting the Archbishop of Canterbury, Rev Justin Welby, today to discuss new guidelines for credit unions. She stated:
My colleague and I, business secretary Vince Cable, are meeting the Archbishop of Canterbury on this issue. We are very keen that credit unions are expanded as they are important way of lending to a community that benefits local people.
…
The government has already committed £38m to help credit unions modernise and some of the challenges they face, by going up against the likes of paydaylenders, include infrastructure issues.
In June, the Archbishop gave a significant speech in the Lords, in which he called for flexibility in the regulations in order to permit churches and other organisations to set up and promote credit unions to serve local communities.
* Mary Reid is a contributing editor on Lib Dem Voice. She was a councillor in Kingston upon Thames, where she is still very active with the local party, and is the Hon President of Kingston Lib Dems.
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3 Comments
This government is making lots of people use paydaylenders as a last resort due to the Bedroom Tax. Yes, I said TAX. Live with it.
Actually, when will you release figures showing how much money has been saved? I’m betting it will have cost more. D’OH!
I’m sorry, I appreciate the problem of the short-term loan companies, but I find the suggestion from the Archbishop that credit unions could replace them to be silly.
Credit unions are simply not equipped with the finance and organisation to make large numbers of short term loans. The short term loan companies work on the basis that they charge huge interest rates to balance the fact they are lending to people with poor financial records and prospects who have a very high probability of defaulting. If you are in the business of making loans to people who are highly likely to default, you do need to put a lot of effort into pushing those you’ve lent money to to pay it back. You need lawyers and an army of debt collectors, and an army of people doing the research to track down the defaulters. Credit unions don’t have this, and it would wreck their image if they did. By the very nature of credit unions, they have to be cautious lenders.
The huge supposed “fees”, which standard banks charge if you go over your credit limit for a day or similar, are even more usurious than the short-term loan companies when you look at how much is paid for how much real “lending”. Years ago I had the experience of someone I’d written a postdated cheque to, who PROMISED me they’d wait to put it in, “accidentally” (so they said) put it in earlier, resulting in a whole series of other things bouncing, and bank costs of several hundreds, leading to more problems and bank costs later on – took me YEARS to recover. Well, I’d rate pay 1% a day to Wonga than experience that again.
I think there is a role for short-term lenders where the interest rates look high, but it’s a real reflection of the risks and admin costs involved. Where it becomes evil is when the interest rate accumulates, which very easily happens when someone desperate has taken out a short term loan, hoping they could pay it back quickly, but found they can’t – maybe someone on a zero-hours contract, who thought they’d get called in to some work soon but didn’t. So it seems to me the best way to control this is to have a cap which stops compound interest building up to ridiculous levels, but which allows short term charges to be applied up till that.
The main reason why credit unions are reluctant to make short term loans is that their are limited by law in the rate of interest which they can charge. This is sufficient to allow them to cover the administrative costs of longer term loans but not small short term loans. If this requirement were relaxed the credit unions would be able to compete with pay day lenders and, because of their simple operating model, at much lower rates than Provident or Wonga.