This is an historic moment, but more could be done right now to tackle rip off lenders

After fifteen years of campaigning on the issue, we are delighted that Government today included provisions within the Financial Services Bill to provide regulators with the power to cap the cost of credit agreements.

The Government amendment sets out a general power for the new Financial Conduct Authority to make rules that:

• Prohibit the charging of certain types of fees which it considers to be unacceptable; and


• Prohibit the charging of costs above an amount which it specifies as unacceptable.

Further to this, the FCA is to be provided with a power to prohibit ‘rollover’ lending, which is commonly used by payday lenders.

In the event of a breach of any such rules, agreements will be unenforceable, with any payments made by the borrower recoverable from the lender, and the lender will be liable to pay compensation to the borrower.

Welcoming the Government amendment, Damon Gibbons, said:

“This is an historic moment. After fifteen years of pointing out how money lenders have been exploiting the poorest households we finally have cross party agreement that direct action to cap prices and prevent other abuses is needed . The legal loan sharks are now on borrowed time. However, we have to move forwards as a matter of urgency and the FSA should now launch a consultation to help shape the new rules as early as possible.

But more can and must be done now to protect consumers. The FCA will not be taking on the responsibility for the regulation of consumer credit until 2014. In the meantime, and faced with a possible future crackdown, many money lending companies will inevitably take one last opportunity to rip off some of the poorest households in the country.

To prevent this, the Office of Fair Trading should immediately revise its Irresponsible Lending Guidance by indicating a level of credit costs the charging above which it will take as prima facie evidence of an irresponsible lending business model. We recommend that these ‘benchmark costs’ be initially set at £20 per £100 lent for payday loans and £65 per £100 lent for door to door money lenders.

It is now six years since the Competition Commission found that home credit lenders were making excess profits. At the time of the Commission’s inquiry, Provident Financial was charging £65 per £100 lent. It is now charging £82 per £100 lent, yet its cost of capital have not increased significantly and, with improved data sharing in place across this sector it has better information available to it to assess the risk of default. By our calculation, Provident has made at least £30 million in excess profit in the past two years alone. Insisting it reduces its prices back to the level charged in 2006 would be a good start on delivering on the promises to tackle the money lenders made in Parliament today."

Celebrate the victory! But now the hard work begins

Time is running out for legal loan sharks in the UK. On Wednesday night the Government finally decided to provide the new regulator, the Financial Conduct Authority (‘FCA’), with the power to cap prices in the consumer credit market. It has taken a long, hard, campaign to get here.

In the winter of 1998, whilst working as a money adviser in the West Midlands I was asked to meet a group of lone parents to talk about the problems they faced in the run up to Christmas. They told me about the way many of them were targeted by door to door money lenders like Provident Financial, and how those loans, which carried a cost of £65 for every £100 they borrowed, meant they subsequently struggled to heat the home and in some cases feed themselves properly. They told me how a loan taken in haste to buy Christmas presents for the kids would rapidly lead to a cycle of borrowing to pay off borrowing; to hopelessness and depression. It was that group of lone parents who convinced me that something needed to be done.

Working with other money advisers we managed to get some media attention that year and that brought with it the support of a great many local church and community groups who were also starting to take action on the issue. In 1999, Niall Cooper, the National Co-ordinator of Church Action on Poverty and I joined forces to formalise the campaign giving it the name ‘Debt on our Doorstep’. We had two simple aims – to get an interest rate cap and force the banks to provide affordable credit to people on low incomes. And, we set ourselves two years to get the job done.

Over all the years since, we never swayed from these basic aims, and somehow we just kept going. The campaign has been as well informed as any could be. My thanks go in particular to Professor Udo Refiner in Germany, and Professors Iain Ramsay and Toni Williams here in the UK, but we have been aided by colleagues and contacts too numerous to mention, drawn from all around the world. Their willingness to talk through how caps work in practice has been invaluable. The campaign has also remained connected to the people most affected by the problem throughout, and London Citizens and Church Action on Poverty both deserve particular credit for ensuring this has been the case. And, of course, over the past two years we were fortunate to have a simply amazing advocate for the cause in Stella Creasy MP.

But whilst we can celebrate the fact that the new regulator will be able to take action, we also have to mourn the fact that the money lenders have been ruining the lives of our friends, families, and neighbours for all the time that Government failed to act. The fact of the matter is that things have been getting worse not better. Provident Financial, who as a result of our campaign, were found to be making an excessive level of profit by the Competition Commission in 2005, now charge £82 for every £100 they lend. And in the years since we started our work we have witnessed an explosion of payday lenders charging astronomical rates of interest with virtually no checks on whether people can afford to pay. The writing was on the cards for the industry when, earlier this month, albeit after years of slumber, the Office of Fair Trading finally stood up for low income consumers and released damning evidence of the lenders failure to comply with even the existing, and frankly woeful, rules in this respect.

We must ensure that the FCA does a much better job. Simply changing the name on the door will not do. The FCA must now set out a clear plan of action to determine how it will use its new powers – not in concert with the lenders to enable them to carry on business as usual – but with us, and to deliver justice for hard up households across the country.

Because justice is what this campaign has always been about. We know that the lenders borrow their money from the banks and financial markets at rates which are currently on the floor. They lend it on at sky high rates to the poorest. The FCA must now be prepared to open the box and reveal just how much money has been going from the banks to the money lending industry. Although Government’s decision to give the FCA a power to cap rates has grabbed the attention, we also won another significant victory over the Financial Services Bill this month: as Government has also agreed to require the FCA to consider how well people can access affordable credit when carrying out its duties, and has indicated that it will require banks to release details of how much lending they are doing in our poorer communities.

So after all this time both of Debt on our Doorstep’s aims are now on the verge of being realised. What next? Work harder; follow the money, and hold the FCA to its task.

Damon Gibbons 29/11/2012, Leicester

End Legal Loan Sharking Campaign Launched

Debt on our Doorstep is pleased to announce the start of the 'end legal loan sharking campaign' which has widespread support from MPs, campaigners and civil society groups. Further details of the campaign can be found at http://www.endlegalloansharks.org.uk/

Better Banking Campaign calls for party leaders to sign up to a programme of real financial reform

To the leaders of all parties,

We are writing on behalf of low-income communities, third sector organisations, and small businesses across the UK These groups have suffered and continue to suffer unfairly, because financial institutions have not met their needs. We feel strongly that in return for the privilege of a banking licence, and billions of pounds of public investment, we need a new settlement between society and the financial sector.

Around 6 million people cannot access mainstream credit –often due to having no credit history, not a bad one- and have no choice but to borrow at interest rates of up to 9,000%, leading to inescapable spirals of debt. Lack of access to banking services costs low income households av. £1,000 more a year.

So many of us take credit for granted, with our mortgages and student loans. But low-income communities, third sector organisations and small businesses suffer from unfair access to financial services. Responsible lending, (not lending for lending’s sake) advances us socially and financially.

Therefore, what we want is a financial sector that reaches out to support those who need the most help, and enables them to become financially independent: to build savings and pensions, to have every opportunity to flourish financially and economically. We need a system that actively encourages financial institutions to engage with low income communities, third sector organisations and small businesses.

We call upon the BBC and participants to cover these issues in the final Party Leaders’ Debate:

• Requiring banks to publicly disclose where they are lending and providing services – how much and to whom – including in respect of small businesses
• With this data, providing incentives and obligations for banks to serve social responsibilities, along the lines of the US Community Reinvestment Act.
• Capping the amount that can be legally charged for credit
• Reinvesting 1% of banks’ profits for public benefit
  

Many are still struggling in the wake of the recession. Don’t return us to business as usual.


Signed,

The Better Banking Campaign,
Bishop Doyé Agama, Deputy Moderator, Churches Together in England, National Director, Apostolic Pastoral Association

Black training and enterprise group

Clifford Rosenthal, President/CEO, National Federation of Community Development Credit Unions

Craig Dearden-Phillips MBE – Social EntrepreneurDon Smallwood MBE, Chairman of Preston Road Neighbourhood Development

Dr Doreen Finneron MBE

Dr Rebecca Tunstall, LSE

Dr. Campbell Jones, Past Chair, 2008-2010, of the European Business Ethics Network (UK)

Ed Mayo, Co-operatives UK

Executive Director of the Faith Based Regeneration Network UK

Geoff Mulgan, Director Young Foundation

Hilary Willmer, founder of CROP

Jaz Greer – Founding Director Cast Trust

Jeremy crook OBE

Liz Richardson, University of Manchester, Research fellow

Maria Saur Senior Consultant/Social Anthropologist

Marilyn Taylor, Emeritus Professor, University of the West of England

Marion Jenner, Campaigner

Mark Ebert, Close Brothers PLC PERSONAL CAPACITY

Martin Sime Chief Executive SCVO

Nigel Kershaw OBE, CEO Big Issue Invest

Pat Conaty, Research Fellow, New Economics Foundation

Prof. Peter Case, UWE

Prof. Simon Lilley, Head of the School of Management, University of Leicester

Professor Stefano Harney, Chair, 2010-2012, of the European Business Ethics Network (UK)

Revd. Paul Nicholson, CEO, Z2K

Roger Morton, Campaigner

Sunny Hundal, editor Liberal Conspiracy

The Right Revd Dr John Saxbee, Bishop of Lincoln

African Women’s Empowerment Forum

Council for Ethnic Minority Communities

NorthamptonshireHuman Relations Network

Leicestershire Ethnic Minority Partnership

CREATE Consortium2

Inter-Faith Forums in the South West

2D (Support for the Voluntary and Community Sector of Teesdale and Wear Valley)

3Gs Development Trust

ACEVO

Act on Carbon

Action for Prisoners’ Families

Acumen Trust

Adur Voluntary Action

African Human Right Heritage

Age Concern Brighton and Hove

Amazon Public Relations

Andrew Logan Museum of Sculpture

Anti Poverty Network Cymru (APNC)

Apostolic Pastoral Association

ART(ASTON REINVESTMENT TRUST)

Asset Transfer Unit

Avenues Group

Bad Pony Media Group

Barrow Cadbury

Barrowmore

Bassac

Batley Resource Centre

BCT Regenesis

Beatbullying

Berkshire County Blind Society

Big Issue

InvestB-inspiredBlack Futures Group

Black Health Agency

Black Neighbourhood Renewal and Regeneration Network (BNRRN)

Blagdons Boatyard – Plymouth

Blantyre Credit Union

Brent Private Tenants’ Rights Group

British Society for Rheumatology

Brixton Advice Centre

Brunswick Organic Nursery and Craft Workshop

Bullbrook Community Association

Burngreave New Deal for CommunitiesB

urnley Pendle & Rossendale

CVSC3 Creative Consultancy

CalibreCARE Rent Scheme

Carnegie UK Trust

Castlemilk Credit Union

Catalyst Stockton CCBSCCLACDFA

Centre for Economic and Social Inclusion

Centre for Innovation in Voluntary Action

Centre for Local Economic Strategies

Centre for Responsible Credit

Chapter 1

Chapter Street

Charitable Futures

Charities Advisory Trust

Charities Evaluation Services (CES)

Chartered Institute of Library and Information Professionals

Children England

Children North East

Children Today

Children’s Education Safety Foundation

Chorley and South Ribble CVS

Christian Council for Monetary Justice

Christian Council for Monetary Justice

Church Action on Poverty

Churches and Regional Commission Yorkshire and the Humber

CLES

Clinks

CLYCH

Communities and Organisations: Growth and Support (COGS)

Communities Inc

Community & Voluntary Partners

Community Foundation Network

Community Hub

Community Matters

Community North West

Community Sector Coalition

Community Transport

Community Transport (National Office)

Community Voluntary Partners, Bolsover

Counsel and Care

Creating Excellence

Creative Support

Crisis

CV Sector Forum

Cymryd Rhan

Cyrenians Derby

Diocese Derby Millennium Network

Derbyshire Learning & Development Consortium

Development Trusts Association

Development Trusts Association Scotland

Dimensions

Directory of Social Change

Distinctive Floristry

Dorothy House Hospice

Durham Rural Community Council

EAPN (European Anti-Poverty Network) England

Ecumenical Council for Corporate Responsibility (ECCR)

Elzabeth Finn Care

Emmaeus

Engage CVS

English Federation of Disability Sport

Equal Access Consultancy

Equanomics

Escape Artists

Euclid Network

European Strategy Group

Fair Finance

Fair Pensions

Faith Based Regeneration Network UK

Faith in Action

Financial Inclusion Centre

Flourish International

Forsters PR

Forum 21

Foundation

Four Acre Trust

Fredericks Foundation

FunderFinder

Gateshead Voluntary Organisations Council

Gensing and Central St Leonards Forum

Give A Brick

Gloucestershire Association for Voluntary and Community Action

Goblin Combe Environment Centre

Goole Development Trust

Goole Retail Chamber

Great Places

Groundwork

Grove House

Hackney Council for Voluntary Service, HCVS

Halifax Opportunities Trust

Hands On

Hands on Help for Communities

Harbour Place Day Centre

Hastings and St. Leonards Chess Club

Hastings Trust

HCT Group

Health for All

Heeley City Farm

Home-Start Hounslow

Housing Justice

Hull CVS

ImpACT

InterHealthInvesting for Good

Involve

IPPR North

IT4CH

JET

JHC

KCA

Kensington and Chelsea Social Council

Kent Enterprise Trust

Key House

Knowsley Domestic Violence Support Services

Knowsley Housing Trust

Lankelly Chase Trust

Learning Through Action Trust

Little Red Bus

Local People Lending

London Citizens

London Funders

London play

London Rebuilding Society

London Voluntary Service Council

Manchester Credit Union Limited

Marketplace Chaplains Europe

MCCHMental Health Providers Forum

MERCi – Ideas into action for a sustainable future

Merton Voluntary Service Council

Metropolitan Society for the Blind

Middlesbrough Community Network

Middlesbrough Partnership Financial inclusion Sub-Group

Middlesbrough Voluntary Development Agency

Mind

More Green

MyBnk

NACUW

National Coalition for Independent Action

National Council for Voluntary Youth Services

National Energy Action

National Housing Federation

Nautilus Welfare Fund

NAVCA

NAVO

Need Not Greed

New Directions Foundation

New Era Enterprises

New Horizons (Teesside)

New Prospects

New Start

Newent in Bloom

Newham Voluntary Sector Consortium

North Moor Trust

North West Network

North West Tenants & Residents Assembly

North Yorkshire Learning Consortium

Nottingham Community and Voluntary Service

Nottinhgam Community Network

Novas Scarman Group

NUS

One North West

One Voice Network

Open Sight

Our Future Planet

Over The Wall

Penwith Community Development Trust

Perennial

Pixeco Ltd.

Preston Community Network

Preston Community Network

Preston Road Community Association

Prime Initiative

Prophet Scotland

Quaker Social Action

Red Ochre

Refugee and Migrant Forum of East London

Regenerate Trust

RENAISI

Rhyl Youth Action Group

Rich Regeneration

RNIB

Rochdale Boroughwide Housing

Royal Society for Public Health

Rural Action Derbyshire

Save the Family

School for Social Entrepreneurs

School-Home Support

Seafarers UK

Sedburgh Book Town

See Ability

Senscot

Shared Future Community interest Company

Shelter Housing Aid and Research Project

Shoreditch trust

Snap Enterprise

Social Enterprise Coalition

Social Enterprise Europe Ltd

Social Enterprise London

Social Enterprise Support Centre

Social Enterprise Works

Social Enterprises Working Together

Social Firms UK

Solace Womens Aid

Somerset Youth Volunteering Network

South Coast Moneyline

South Craven Community Action

South Yorkshire Housing Association

Southey and Owlerton Area Regeneration

Spurgeons

St Anne’s Community Services

St Helens Community Empowerment Network

St Helens District CVS

St John Ambulance in South and West Yorkshire

St Vincent de Paul Society

.staa-allotments

Stone King Sewell Solicitors

STRIDE

Surrey Association for Visual Impairment

Surrey Care Trust

Sussex Central YMCA

Sustainable Brampton

Tenant Participatory Advisory Service Cymru

The Camden Society

The Chaseley Trust

the connectives

The Diocese of Worcester

The Ecumenical Council for Corporate Responsibility (ECCR)

The Foyer Federation

The LankellyChase Foundation

The Lantern Project

The Oastler Centre for Faith in Economic Life

The Young Foundation

Theatro Technis

Third Sector European Network

Third Sector European Network

Thurrock CVS (Council for Voluntary Service)

Time to Let

Titus Alexander, Novas Scarman Group

Tower Hamlets Co-operative Development Agency

Town and Country Housing

Trust Thamesmead

Turn2Us

Tyne North Training

Uday Thakkar

Unite the Union

United Response

Unlimited Potential

Urban Forum

V2C

Voluntary Action Barnsley

Voluntary Action Elmbridge

Voluntary Action North East Lincolnshire

Voluntary Action Rotherham

Voluntary Action Sheffield

Voluntary Action Wakefield District

Voluntary Action Westminster

Volunteer Association Lewisham

Voscur

Walterton and Elgin Community Homes

Walworth Garden Farm

Warwickshire Association of Youth Clubs

WCAVA

Wearmouth Community Development Trust

Wessex Community Action

Wester Hailes Fiscal Factor (Financial Inclusion and Social Capital)

Wirral CVS

Wirral Holistic Care Services

Wirral Information Resource for Equality and Disability

Wolseley Trust

Women’s Resource Centre

Woodthorpe Development Trust

Workers’ Educational Association

YMCA Watford

Yorkshire & Humber Regional Forum

Yorkshire Wiildlife Trust

YOU

Your Nutshell

Z2K

Zero-credit

Zest

Rip off TV - the advert

Want to pay over the odds for your washing machine and other household goods? Want to pay back through pay as you view TV? No money, no TV. Not good.

Well people in Stockton on Tees are now sending out a warning to the world about rip off TV - catch their fantastic video here:

http://www.youtube.com/watch?v=Juu8RhperKk

Rate cap power for OFT debated in Commons Committee

Rob Marris M.P (Lab, Wolverhampton South West), a member of the House of Commons Committee considering the Financial Services Bill, has put down a proposed amendment to the Bill which would provide the Office of Fair Trading with the power to cap credit charges.

The amendments, which Debt on our Doorstep has helped to draft, provide for the OFT to review credit markets within six months of the Financial Services Bill becoming law to establish the level of price competition and if this is found lacking to impose a cap on the total cost for credit. Lenders who disregarded the cap could be fined or lose their consumer credit licenses.

The amendments are being debated in Committee on 14th January although time for consideration is limited and the issue looks likely to be returned to at the Bill's Report Stage debate in the Commons in the next week. A memorandum of evidence to support the amendments has also been submitted by the Centre for Responsible Credit which is available on
the Bill Committee website

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