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

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

Debt & Financial Inclusion in Leicester - 6th June

Leicester Money Advice Ltd, and the East Midlands Money Advice Partnership are holding a one day conference on debt and financial inclusion at Leicester City F.C on Wednesday 6th June.

The event will hear from speakers including Joanna Elson, Chief Executive of the Money Advice Trust and Mark Lyonette, ABCUL and a member of the Financial Inclusion Task Force. The conference will raise awareness of debt issues across the city and county and aims to develop an integrated partnership approach to tackle debt and financial inclusion problems.

To register for the event, which is free, contact Richard Rippin on 0116 242 1150 or by e-mail at richard.rippin@leicestermoneyadvice.org.uk

Scots Tenants Offered Affordable Credit by Housing Association

Margaret Blackwood Housing Association and Dunfermline Building Society have announced a preferential savings and loans scheme for tenants.

Unveiled at the Chartered Institute of Housing’s Financial Inclusion seminar in Edinburgh, the initiative will enable tenants and sharing owners to open an instant access savings account that will offer a preferential rate of interest on balances as small as £1.

Once account holders have made at least two deposits, they become entitled to apply for a loan of up to £500 at a flat rate of interest that is just 0.95% above the Bank of England’s base lending rate.

Jeremy Hewer, Project Manager for Margaret Blackwood Housing Association, said: “We are delighted to offer our tenants the opportunity of getting a high rate of interest on their savings as well as access to more affordable credit.

“Most high street lenders are just not interested in providing small, unsecured loans. This scheme fulfils a demand that has, up to now, been met by doorstep lenders charging exorbitant interest rates.”

Ken Dow, Senior Manager – Community Development at Dunfermline Building Society, said: “The Society is delighted to partner Margaret Blackwood Housing Association in this wider action initiative.

"The Savings & Loans scheme has been specifically designed to assist Housing Association tenants and allow them to make informed and affordable choices when dealing with their personal finances.”

This is the second programme reflecting Margaret Blackwood Housing Association’s commitment to promoting financial inclusion.

Jeremy Hewer explained: “This scheme complements our involvement in a Wider Role-funded initiative within Edinburgh. We have joined up with four other housing associations and with the local Citizens Advice Bureaux to provide financial health checks, advice and counselling to new tenants and tenants who have debt issues.

“But Edinburgh is only one of the 29 Scottish local authority areas in which we operate. We want to provide a nationwide service which improves the general level of financial literacy.

“We would like to hear from other RSLs who might partner us in delivering a comprehensive financial and welfare benefits advice service elsewhere in Scotland. They can contact me on 0131 317 0169 or email me at JeremyH@mbha.org.uk”

Bradford Debt Seminar, Sat 5th May

Bradford, the home of Provident Financial, is to host a seminar event to discuss the development of local financial inclusion and debt strategies on Saturday 5th May.

The event is being organise by The Rev Chris Howson, city centre mission priest for the Bradford Church of England diocese, who said: "We have some excellent speakers from Leeds and Sheffield - places that already have a new strategic plan about debt - that we could learn from. Damon Gibbons, founder of the Debt on the Doorstep campaign, will also be with us."

To register for the event, which is being held at Bradford University on May 5, from 1-4pm, contact Mr Howson on (01274) 727034.

Is Britain A World Leader in Financial Services Provision?

A recently published report comparing Britain and Germany's banking systems cast dount on the claim that Britain is a world leader when it comes to financial services provision.

The report, "The British Banking System: A Good Role Model for Germany?" published by the Anglo-German Foundation for the Industrial Society and written by academics frm the Universities of Birmingham and Heidelberg, focuses particular attention on the levels of financial exclusion and over-indebtedness in the UK that have resulted from the demutualisation of building societies and an absence of proper regulation.

"there seem to be fewer problems with over-indebted households in Germany than in Britain. The more widespread use of credit cards in Britain could be responsible for this. Aggressive marketing of these cards as well as excessively high penalty charges to credit card users who pay late, or are unable to clear their balances, contribute to the problem of over-indebtedness. The punitive charging in Britain is indicative of much more widespread cross-subsidisation in the provision of current accounts – high-balance, low-volume users generally cross-subsidise low balance high volume users due to low deposit interest payments and low charges (for those who stay within authorised credit limits, with punitive charges for those who do not, or cannot).

The relatively high profitability of British banks in recent years may therefore owe much to exploitation of their ‘complex monopoly’ power. In contrast, the lower profitability of German banks is associated with a broader supply of financial services to small enterprises and low-income households. However, the Sparkassen (municipal savings banks) and co-operative banks, which are the most active banks in these market segments, have had an above average profitability in Germany. These findings should be borne in mind by advocates of increased concentration trying to shift the German system towards the British model.

Public sector and co-operative savings banks are no longer a significant force in Britain, and indeed the government has been encouraging the development of Community Development Financial Institutions (CDFIs) and credit unions to fill the gap. Advocates of privatisation of the German public savings bank should also bear this in mind."

Treasury Proposes Financial Inclusion Strategy

The Treasury has today released details of its plans to develop a Financial Inclusion Strategy after the completion of the Comprehensive Spending Review. Financial inclusion: the way forward sets out the Government's goals for financial inclusion policy. Building on the Economic Secretary's announcement before the Budget, that there will be a new Financial Inclusion Fund for the next spending period, which will maintain the 'current level of intensity' of action to promote financial inclusion.

The document also announces a £6 million extension to the Growth Fund to further support for credit unions and community development finance institutions

Ed Balls, commenting on Financial Inclusion, said:

"We have made real progress on financial inclusion but there is still a lot more to do. Tackling financial exclusion is essential for both our economic prosperity and for social justice. It is good for individuals, for society and the economy as a whole. I look forward to working with everyone to drive this agenda forwards in the coming months."

Debt on our Doorstep welcomes the commitment to develop a national financial inclusion strategy but is disappointed that the resources to be made available to support this appear limited to current levels and there is no indication that the Government will compel banks to make increased levels of proviate finance available to third sector lenders.

Damon Gibbons, Chair of Debt on our Doorstep commented:

"The devil will be in the detail of the strategy. But without any regulatory levers on the banks to increase their investment in third sector lenders we remain sceptical that this will achieve the level of growth required to bring affordable financial services and credit to those on the lowest incomes"

Credit Unions Launch Current Accounts

The Association of British Credit Unions Limited (ABCUL) this week unveiled their new current account services, which aim to provide an alternative to high cost bank accounts (particularly by avoiding high cost default charges).

Speaking at the ABCUL AGM in Blackpool on 15th March, Chief Executive Mark Lyonette said:

“We can offer a current account service similar to the banks, but with all the added extras associated with a financial co-operative that is owned and run by its members, for the benefit of members.”

The accounts, which will include a debit card for purchasing goods and making cash withdrawals, will not feature an overdraft option, meaning no high charges or fees. People who require a bank account in order to benefit from Direct Debit and Standing Order payments, will be ideally served by the credit union current account.

South Korea: Limiting Rates and Tackling Exclusion

Dood Comment on South Korean Initiatives:

Recent reports (see below, and previous post) from South Korea demonstrate how measures are being taken to tackle both extortionate lending and financial exclusion. There are lessons to be learnt from this approach in the UK and the proposal to require financial instiutions to make services available to low income consumers echoes calls in the UK for a universal banking obligation and a US style Community Reinvestment Act.

From The Korea Times: 28th February 2007

1 in 5 Adults Denied Bank Loans

By Lee Hyo-sik

One out of every five Korean adults are denied loans and other financial services from banks and other institutional financial firms because of poor credit ratings and unstable job status, an opposition party lawmaker said Wednesday.

Rep. Shim Sang-jeong of the minor opposition Democratic Labor Party (DLP) said many of them have no choice but to borrow from private moneylenders who charge excessively high interest rates.

Citing data submitted by the Financial Supervisory Service (FSS), Shim said about 5.64 million adults aged 18-90 were unable to carry out normal financial activities with institutional financial services companies at the end of last year, accounting for 16.3 percent of the country’s 34.7 million adults, up 10.2 percent from 2005.

``These days, a large number of people, even those in their 20s and early 30s, have no choice but to go to private lenders for funds as banks and other establishments refuse to grant loans or issue credit cards to them because of their poor credit history and insecure job standing,’’ Shim said.

She said in reality, more people are disallowed various financial services than the statistics show, insisting that at least 7.2 million adults, or 20.8 percent of the total, are denied loans and credit cards.

The government estimates that about 5.6 million people borrowed money from private lenders last year, paying about 200 percent interest per year on average, much higher than the legal limit of 66 percent set by the government.

The number of registered loan firms stood at 16,780 as of the end of September, while the number of unregistered moneylenders is estimated to be above 25,000, according to the FSS.

To help people with poor credit records and low incomes enjoy everyday financial services, Shim suggested the government should require institutional financial firms to grant loans to low-income households, and set up a state-funded micro-credit institution to provide small amounts of finance to people with little means.(emphasis added by Dood)

With many people defaulting on their loan interest payments because of excessively high interest rates and becoming credit delinquents, the National Assembly is set to revive a ceiling on the interest rates private lenders can charge borrowers.

Last week, politicians agreed to lower the legal limit on annual interest rates to 40 percent of the principle from the current 66 percent. It is expected to pass the bill at a session planned next month.

The governing Uri Party proposed setting the interest rate limit at 40 percent per year last September, while the DLP insisted on adopting a 25 percent interest rate ceiling.

The agreement came after the Ministry of Finance and Economy, which had initially opposed the reintroduction of the interest rate cap, dropped its earlier position to support the measure.

Deputy Prime Minister and Minister of Finance and Economy Kwon O-kyu said last week that the government will ensure the measure has its intended effect. Kwon had initially opposed such a restriction last July when he was appointed as the country’s top economic policymaker.

``We will strengthen the monitoring of private moneylenders to protect borrowers from high interest rates,’’ Kwon said in an address to Uri Party lawmakers.

He also said the government, with the cooperation of associations of private moneylenders, will crack down on moneylenders who are operating illegally.

Ed Balls Announces Extension of Financial Inclusion Fund

Ed Balls, the Economic Secretary to the Treasury, yesterday announced that the Financial Inclusion Fund would be extended to 2011 to provide for "financial inclusion activity at the current level of intensity". Following 2011, he expects to see financial inclusion activities mainstreamed into core departmental activities. The Financial Inclusion Fund will continue to be monitored by the Financial Inclusion Taskforce until 2011.

Speaking at a Resolution Foundation event called to discuss the Treasury's proposal for the creation of a generic financial advice service, Balls stressed that there was a continued commitment to financial inclusion across Government and following the Comprehensive Spending Review, a new cross-Government Ministerial working group on Financial Inclusion would be established to develop a detailed financial inclusion action plan for implementation.

Responding to the announcement Damon Gibbons, Chair of Debt on our Doorstep, commented:

"The commitment to create a national financial inclusion action plan is to be welcomed. However, much more effort needs to be made to obtain financial services industry contributions to support an expansion of money advice and affordable credit provision. Continuing the Financial Inclusion Fund at its current level - although better than nothing - is inadequate to bring about the level of change required."

Debt on our Doorstep has called on DTI Minister Ian McCartney to consider a levy on the Door to Door lending industry of £100 million - the amount of excess profits that they will make between now and the implementation of the Competition Commission's recommendations - to boost credit union and third sector lending to the poorest at affordable rates.

"At a stroke that would quadruple the Government's contribution to the growth of affordable credit through the Financial Inclusion Fund", said Mr Gibbons.