My first official duty of the New Year was to launch a new initiative to help counter legal loan sharking in our area supported by the County Durham Credit Unit, East Durham Homes and East Durham Partnership. Under the Pilot Scheme, The County Durham Credit Union, which I have been a member and supporter of since it was established in 2010, provides an affordable loans package for furniture. The £500 loans are available to those who complete a two week employability course and who also receive a £200 voucher from East Durham Partnership. The £700 voucher must be redeemed with East Durham Partnership providing a basic furniture package to the value of the voucher. The loan is repaid over 18 months at £7 per week by Standing Order.I remain a firm critic of payday lenders not least because in 2013 average household energy bills are expected to reach an all time high of £1,300. Add to this the pay and benefit freeze and the inflation busting public transport and rail fare increases just announced. It has been estimated that four million people planned to take out a payday loan just to cover the cost of Christmas. Companies advertising on commercial television and radio offer loans with mind-boggling interest rates of up to four thousand percent or more are now operating in every community lending online. It is estimated that one in three of these loans are being used to pay off another payday loan and all too often this form of credit creates a spiral of debt. Many end up borrowing more to pay off their original debt and find they still can’t make ends meet.
Shelter finds a sixty percent rise in people struggling to pay their rent or mortgage in the last twelve months. As a result, almost a million people turned to a payday loan to help pay for their housing. Research shows half of all borrowers who have taken out a payday loan have taken out credit which they just couldn’t repay; over half have missed a payment, so incurring further changes they can’t afford. With further cuts to household incomes due to come into force this year due to cuts in tax credits, the number relying on payday loans could rise even further.
Most other countries have tackled this toxic form of finance by capping the cost of credit and limiting the debt consumers can get into when borrowing money in this way. Until recently, the British Government resisted taking action, instead relying on these companies themselves to stick to their own voluntary codes of conduct. A report by the Office of Fair Trading delivered a damning indictment of the Government’s position, showing how badly these firms treat British consumers. The National Audit Office’s own work shows the failure to address this issue cost UK consumers £450m last year. Last month the Government finally caved into cross- party demands to cap the cost of credit for pay lenders by amending the Financial Services Bill, giving the new Financial Conduct Authority the power to limit the prices consumer credit companies can charge. However, this power won’t come into force until 2014. Without action now, and with the rising costs households will face, 2013 could be a window of opportunity for these so-called legal loan sharks. That is why our own County Durham Credit Union has such an important role to play in countering the slick advertising of the payday loan sharks.
