new banking partnership sounds death knell for predatory lenders

As new figures predict record Christmas debt, innovative banking partnership scales up to sound death knell for loan sharks and predatory lenders.

As levels of consumer debt soar to record levels leaving the quarter of UK households denied access to mainstream credit particularly vulnerable, the Community Banking Partnership (CBP), launched today by Treasury Minister, Stephen Timms, could offer a lifeline to thousands across the UK excluded from mainstream credit. The CBP is the result of over two years collaboration between nef (the new economics foundation), the National Association of Credit Union Workers (NACUW) and Community Finance Solutions at the University of Salford. The CBP model has been developed with the funding support of Lloyds TSB.

New figures released by nef on the day that the CBP is launched, predict record levels of consumer debt in the UK this Christmas. Those at the sharp end are low income households in urban and rural Britain, providing yet more evidence of the need for a heavyweight alternative to doorstep and extortionate lending. The Community Banking Partnership, will build on, and extend existing services to a level that will challenge the supremacy of the predatory lending industry, offering the first national joined-up solution for the financially excluded.

nef’s predictions show that total household debt on cards, mortgages and loans in the UK, which passed the £1 trillion mark in July this year, will have risen by an additional £68 billion, reaching £1.068 trillion by the end of the year. In addition:

• Court actions to repossess homes are already rising, and personal insolvencies will soar to a new high of 15,700 in the first quarter of 2005 alone –double the same period in 2000
• On average, UK households will be spending 33 per cent of their wages servicing debts - if a family with an average mortgage were unable to access conventional credit, a ten year loan from a predatory lender charging 40 per cent interest can send this soaring to 66 per cent

“While the headlines have focussed on legitimate concern about levels of credit card debt among average consumers, the real scandal this Christmas is that the most vulnerable consumers in Britain are prey to interest rates ten to forty times higher than a credit card for small loans for children’s toys or to meet a winter gas bill. By joining up, and scaling up existing credit union and community finance services, the Community Banking Partnership will offer a radical alternative that can take on the might of predatory lenders”, said Pat Conaty, Senior Research Associate at nef.

In 2002, nef’s groundbreaking report, Profiting from Poverty showed that licensed moneylenders who charged the highest annual rates offer loans starting at 160 per cent and soaring to 1,564 per cent. For families unable to access any other form of credit, such extortionate interest rates rapidly trap them into a cycle of un-payable debt. And the profits to be made from poverty are substantial: a rapidly expanding sub-prime lending industry now has a turnover of over £16 billion a year and a doorstep lending business of £3.3 billion annually.

The Community Banking Partnership developed by nef, NACUW and Community Finance Solutions has drawn on the practical expertise of those working in the front line of financial exclusion and brings together credit unions, the community finance sector, mainstream banks and money advice agencies for the first time to deliver a ‘one-stop-shop’ approach to financial inclusion.

Mick Brown, of the National Association of Credit Union Workers, said, “On their own ethical lenders such as credit unions are struggling to compete against extortionate lending practices. By entering into local partnerships with housing associations, CABx and other finance providers, credit unions can widen their already significant impact, providing fair, accessible services to those who need them most.”

In his pre-budget report at the beginning of December, the Chancellor acknowledged the scale of the problem when he set out a raft of new measures including a substantial new fund for social lending and money advice, and the establishment of a Financial Inclusion Task Force.

Traditionally, ‘doorstep’ lenders have been closer, louder and more immediately available. By joining up, and scaling up alternative finance, the CBP will offer a viable, easily accessible alternative for the most vulnerable. It will offer financially excluded households a seamless service that is focussed on individual need, providing money advice and support that will help improve financial literacy, help with bill and debt repayments, and also deliver savings facilities, affordable loans and access to basic banking services in groundbreaking new partnerships across the UK. The first of these is now underway in Birmingham, with another six regional areas being considered across England and Wales.

Click here to read the Community Banking Partnership Prospectus

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	Jessica Brown