Early Day Motion on Home Credit Market

Debt on our Doorstep is calling on all supporters to lobby their MP's to support an Early Day Motion (EDM number 379) put down by Ian McCartney M.P on the Home Credit Market.

The EDM, which has already attracted over 50 signatures, reads:

That this House notes the ongoing lack of price competition in the home credit market and the devastating impact that high cost credit is having on the poorest communities as reported by Channel 4's Dispatches programme on 7 December 2009; further notes that the Competition Commission's remedies for this market have not had any impact since its inquiry into the home credit market in 2006; further notes that Provident Financial now charges £82 for every £100 lent, which is 26 per cent. higher than was reported three years ago; further notes that Provident now have an estimated 70 per cent. of the market and that the `unfair credit relationship' test introduced by the Consumer Credit Act 2006 has not led to a single instance of prices being lowered; believes that urgent and effective action is now required to help low income borrowers obtain credit at a fair price; and calls on the Government to provide the Office of Fair Trading with a power to cap prices in non-competitive areas of the credit market, or the Competition Commission to immediately review its remedies for the home credit market and or the Financial Services Authority to introduce a rule requiring banks to demonstrate how they are helping to expand access to affordable credit, for example by partnering with credit unions.

Supporters are urged to write to their M.P's asking them to sign up to the EDM. The list of current signatories can be found at http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=39940&SESSION=903

Speech to All Party Parliamentary Group on Credit Unions

A copy of Debt on our Doorstep Chair, Damon Gibbons, speech to the All Party Parliamentary Group on Credit Unions is now available here

New report highlights 'flawed' evidence base of Government policy on rate caps

A new report from the New Economic Foundation has revealed that Government's previous decision in 2006 not to implement a rate cap was based on 'flawed' evidence. The report, Doorstep Robbery, reveals that a prior DTI funded study of interest rate caps in other countries ('the Policis Report') failed to meet even basic standards of social research. It also indicates that poor people in the UK are more likely to be financially excluded than in France and Germany as well as paying a much higher price for credit.

The NEF report calls on Government to introduce a cap on the total charge for credit and for banks to be obliged to meet the needs of low income households for affordable credit either directly through the provision of overdraft credit or in partnership with credit unions.

The full report can be downloaded from http://www.neweconomics.org/fairlending and is being launched tonight at the London Citizens Meeting in the Barbican Centre, which will see 2,000 people call for a cap on interest rates at 20% of the total charge for credit - see http://www.londoncitizens.org.uk/pages/newsarchive/2009-11-17-%20November%20Assembly.html

BBC Inside Out reports on the misery caused by Home Credit

Low income borrowers using Home Credit are being charged amongst the highest costs to be found in the whole of Europe and the US. That's the shocking finding reported tonight on BBC's Inside Out programme to be broadcast in the West Midlands. The report, which was undertaken in Coventry also found that a huge amount of the local Citizen Advice Bureau's work was taken up in dealing with problems caused by just one company - Provident Financial.

Our own review of prices charged by Provident has found that these have increased by 26% in just three years. This is despite the Competition Commission introducing measures in 2007/08 which were supposed to bring prices down!


Debt on our Doorstep has therefore today written to Business Secretary, Lord Mandelson, and called for immediate action to cap Provident's prices.


A copy of the letter can be downloaded from http://www.debt-on-our-doorstep.com/files/letter to Mandelson.pdf

Transact members again vote rate ceilings as a priority for action

Transact members have again registered their support for interest rate ceilings to be introduced into the U.K as a matter of urgency. Over 40% of all members voting in the last survey put interest rate ceilings in their top three priorities. Only securing a universal right to basic banking (57%), expanding credit unions (52%), and a national roll-out of money guidance (45%) scored higher.

Transact has 1500 members, of which 265 completed the survey. This indicates that we have the support of at least 108 consumer agencies in the UK for our campaign on rate caps.

Government consults on Debt Management Plans but County Court IT systems hold up delivery of real assistance for debtors

The Ministry of Justice, Department for Business, Innovation and Skills, and the Insolvency Service have launched a joint consultation over the potential need to place debt management plans on a statutory footing in order to improve the assistance to indebted households. At the present time many people in debt enter into voluntary debt management plans but are unable to get a proportion of their debts written off as they may be able to through a statutory scheme. As a result many of the Debt Management Schemes that are entered into are not sustained.

In the consultation paper, Government also indicate that other possible sources of assistance - which formed part of the Tribunals, Courts and Enforcement Act 2007, such as Enforcement Restriction Orders which would have provided people with the opportunity of obtain a moratorium on debt recovery for up to a year - will not now be implemented until 2011 at the earliest due to the need to replace County Court IT systems.

Dood will be making a full response in due course, but the delay over the introduction of Enforcement Restriction Orders is clearly disappointing and fails to fit with Government's commitment to provide 'real help now'. Alternative approaches may therefore need to be found - for example by the Treasury insisting that lenders who have received tax payer bail outs now offer moratoriums on debt collection for up to 12 months where someone has recently been made unemployed.

Dood issues new seven point plan to reform financial markets

Debt on our Doorstep has today called for the Treasury to place more emphasis on protecting consumers in its strategy to deal with the financial crisis and to increase financial stability. In particular, Government should now legislate to allow the FSA and OFT to cap the cost of credit where it is apparent that these are reflective of high risks or where there is a failure of competition.

The paper also argues that Government cash used to bail out the banks must be diverted to those that need it most including homeowners with little or no equity, rather than to the wealthy who are the only ones currently benefitting from historically low bank base rates.

And noting that many people will now be defaulting on credit agreements and facing insolvency through no fault of their own, Debt on our Doorstep has also called for an immediate review of insolvency legislation and credit scoring mechanisms to ensure that people affected by the recession are rehabilitated back into mainstream financial services as soon as possible.

The full paper is available here

Cap the Total Charge for Credit not APR's

Recent discussions over interest rate caps have included concerns that DWP Growth Funds are being used by credit unions and community development finance institutions ('CDFIs') to lend out at APR's of between 30% and 40%. Because these lender's aren't driven by profit motives, it has led some to argue that interest rate caps would not be a practical means of delivering fairer prices to low income borrowers and that they would drive all types of lenders out of business.

In fact there is no reason why price ceilings would not be an effective means of ensuring people aren't ripped off in uncompetitive credit markets including home credit or payday lending. Uncompetitive markets allow lenders to mark up prices over and above where they would be under normal market conditions. They therefore make excess profits. Caps can be used to reduce prices to the level where normal profits would be made - but should not be used to eliminate point profit altogether.

The question therefore is where to put the cap, not whether it could work in principle. Capping the price of credit is more complicated than in other markets simply because the APR measurement of price is subject to vagaries. It is skewed against short term lending. The shorter the term of the loan, the higher the APR. As a result, a cap on the APR% could result in lenders simply lengthening the term of their loans in order to bring down the headline % figure.

So let's focus on a different measurement of price - the total charge for credit. Provident Financial, the UK's largest door to door lender with over 50% of the market, charge about £65 for every £100 borrowed. That’s a Total Charge for Credit (TCC) of 65%. Payday lenders typically charge between 15% and 33% total charge for credit on the first month, but this figure doubles each time the loan is rolled over. As for credit unions and CDFI's, well APR’s of 30% to 40% may sound grim, but the total charge for credit on these loans lies between just 8% and 10%.

We need to forget APR’s in this debate and support a cap on the Total Charge for Credit at somewhere around 20%. That would deliver real savings to low income borrowers and wouldn't put non exploitative lenders out of business, but it would ensure that Provident, for example, were no longer able to benefit from a lack of effective price competition and it would limit payday lender irresponsibility.

Of course, there are alternatives to capping - for example by encouraging greater competition in the first place. But since the financial crisis has hit this is likely to take anything between four and ten years to happen. And it's already been 6 years since we first highlighted the lack of effective price competition in the door to door lending market, during which time by the Competition Commission's calculations around £0.5 billion has been taken out of the poorest communities in excess profit.

So let’s not wait another decade to deliver fair prices. And let's not divide those that are on the side of low income borrowers – we know where the real problems lie. A united campaign for a cap now could make all the difference!

OFT publishes draft guidance to prevent irresponsible lending

Debt On Our Doorstep today welcomed the draft guidance on responsible lending published by the OFT.

Presenting his initial reactions to the document, Damon Gibbons, Chairman of Debt On Our Doorstep, commented:

“This draft guidance is a huge step forwards for consumers. If implemented as currently drafted it would require lenders to make a proper assessment of a borrower’s ability to repay prior to granting a loan. We know that at the moment many lenders fail to make effective checks before lending, preferring to trap people in a cycle of increased borrowing. In the long term this has devastating consequences for low income households and communities.

“The OFT is to be applauded by putting forward such robust proposals to deal with this problem and we look forward to working with them over the coming 12 week consultation period.”

Barnardo's slams Provident rates of 545%

Barnardo's 'Breadline Britain' report, published yesterday, rightly slams Provident's 545% APR loans to some of Britain's poorest families as 'extortionate'. The report comes on the same day that Provident announced a rise in pre-tax profits in the first six months of the year and following admissions from Provident Chief Executive Peter Crook that one of the effects of the credit crisis has been to drive people previously catered for by cheaper lenders to the high cost end of the market.

But what is to be done about the problem? The OFT has today published it's Financial Strategy Action Plan which contains, amongst other things, an acknowledgement that competition in our credit markets has been curtailed by the crisis and is failing to deliver a fair deal for consumers.

That comes as no surprise. In 2006/07 the Competition Commission investigation into door to door lenders found that nearly £100 million in excess profits were being made by firms in this market. But with competition weakening, the Commission's own remedies, which largely relied on people being able to build up a credit record and move onto cheaper, more mainstream types of borrowing, have failed to address the problem. The movement is all the other way.

We now need urgent and direct action to address this failure. As part of its plan, the OFT is reviewing the high cost credit market and rightly considering the case for a cap on credit charges. In our view, this cannot come too soon and we will be submitting evidence on this issue to the OFT in late August. But the real need now is for supporting agencies to lobby their M.P's to support the introduction of legislation to cap credit costs before the next general election. If you are able to help with the campaign, please get in touch by e-mailing info@debt-on-our-doorstep.com

BERR Consults on Consumer Credit Directive

The Department of Business, Enterprise and Regulatory Reform is consulting on the implementation of the Consumer Credit Directive. The consultation, which was launched with little fanfare on the 14th April, will run for only 8 weeks (as opposed to the usual 12), in order to provide lenders with a longer lead in time to accommodate any changes.

The UK process for implementation of the Directive has been dominated by industry interests, with 'expert groups' established comprising of industry representatives whilst consumers have been provided with few opportunities for input. The curatiled consultation period will once again put them at a disadvantage in making their response.

The consultation document is available from http://www.berr.gov.uk/files/file50962.pdf

The Directive covers:

the information that must be provided to consumers at pre-contract, contract, and post contractual stages

information to be included in advertisements

early repayment

APR calculation

a duty on lenders to provide adequate explanations of the credit offer

an obligation to check the creditworthiness of the consumer

the right for consumers to withdraw from an agreement within 14 days

OFT consults on Financial Sector Strategy

The OFT has launched a consultation on its proposed financial services strategy which sets out its approach to the sector in response to the current economic crisis, and also announced a review of the unsecured consumer credit market.

The OFT is asking interested parties to comment on its proposal to focus on two inter-related themes:

• The prioritisation, in the short term, of promoting fairness and responsibility between the credit industry and consumers, and

• advocating choice and competition to ensure that public decisions made to deal with the current crisis do not harm competition in the long term to the detriment of consumers.

The consultation will run until 12 June 2009, and the consultation document can be downloaded here.

A review of the unsecured credit market is also being scoped out, with details available from:

www.oft.gov.uk/oft_at_work/markets/services/credit-sector/.

Comments are currently being invited concerning this until 8th May, with the full review expected to start in the summer.

Global Coalition for Responsible Credit calls on G20 leaders to create a financial system ‘worth saving’

Debt on our Doorstep, with support in the UK from the trade unions UNITE and PCS, the New Economics Foundation, Church Action on Poverty, the National Housing Federation, and former Cabinet Minister and Chair of the Labour Party Ian McCartney M.P, and with the support of a Global Coalition for Responsible Credit comprising the European Coalition for Responsible Credit, the U.S National Community Reinvestment Coalition, and partners in twenty other countries, today issued a call for the forthcoming meeting of the G20 to commit itself to the creation of a financial system that is worth saving by:

Agreeing to place financial services providers under a ‘duty to exercise responsibility in financial services’. Financial services providers need to be required to sign up to clear principles of responsibility and to have transparent mechanisms in place to ensure that these principles guide their behaviour in practice. Remuneration policies need to be reassessed in the light of this ambition. The responsibility should include a requirement for financial services providers to properly consider the needs of all households, including those on low incomes, when designing financial products

Ensuring taxpayer investment in the banking system is turned into real help for people in financial difficulties, by agreeing actions to force lenders to offer to reschedule the liabilities of households in debt over the long term at affordable rates

Committing to take further action to stop home repossessions and ensure lenders offer affordable mortgages to people in negative equity and/or mortgage arrears, and to work to stabilise housing costs in the longer term by increasing the supply of affordable housing.

Chair of Debt on our Doorstep, Damon Gibbons, commented:

“Financial services providers have engaged in irresponsible and usurious lending, causing households to become increasingly vulnerable to economic shocks and saddling them with unsustainable levels of debt. We call on the G20 to signal a decisive break with the short termism, greed, and irresponsibility that have caused the current crisis and to take action to ensure that taxpayer investment in the banking system is now used to create a system that benefits people.”

Supporting the work of the Global Coalition, Andy Case, a National Secretary for Unite, the UK’s largest trade union with 2 million members, including 178,000 working in the Finance Sector, said:

“The current situation provides an opportunity to re-build a financial system that supports a long-term outlook and is consistent with democratic aims, financial stability and social justice."

Protecting low income borrowers in the credit crisis

Debt on our Doorstep and Ian McCartney M.P have now finalised their report on measures that government can be taking to protect low income borrowers in the credit crisis. The full report is available from the link below.

The report has now been submitted to the Department of Business, Enterprise and Regulatory Reform and the Treasury and we are hopeful of a meeting in the near future.

In the meantime, the proposal to cap prices in non-competitive areas of the credit market is gaining further support with Transact members voting this as one of their top three priorities for action in a survey at the end of 2008. Following the Transact Annual conference London in November, we understand that there will be a number of regional debates organised on this issue in Spring 2009.

Protecting low income borrowers in the credit crisis

Government urged to bring forward introduction of enforcement restriction orders

Debt on our Doorstep and John Battle M.P have teamed up in a bid to get government to bring forwards the introduction of enforcement restriction orders. The Tribual, Courts and Enforcement Act passed by Parliament in 2007 contains provisions for the county courts to make the orders were a debtor's financial circumstances have significantly worsened since taking out credit, and allow for debt recovery action to be suspended for up to 12 months. With rapidly rising levels of redundancies and unemployment, the orders would provide real help now to many households struggling to cope with the recession.

However, following a parliamentary question from John Battle to Bridget Prentice at the Ministry of Justice, it would appear that the introduction of enforcement restriction orders is not scheduled until 2010.

We believe that is far too late and urge government to act now.

John has put down an Early Day Motion on the subject which is available from the link below. Please write to your M.P and urge them to add their signature.

http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=37814&SESSION=899