DEBT CAMPAIGNERS CALL ON GOVERNMENT TO CAP INTEREST CHARGES

Debt on our Doorstep, the national network for fair finance that includes the New Economics Foundation, today called on the Government to cap interest charges to put an end to extortionate lending at rates of interest frequently in excess of 200% APR, as a key element of its response to the Government’s consultation on Extortionate Credit.

Research conducted for Debt on our Doorstep by Fulcrum Chartered Accountants shows that interest rates of over 180% APR are routinely being charged by doorstep lenders. It concludes that there is a lack of competition in the £3 billion Home Credit market, dominated by 4 companies who between them control 79% of the market.

Debt on our Doorstep, a coalition of organisations including OXFAM, Church Action on Poverty, the National Housing Federation, ABCUL and the New Economics Foundation is calling for a cap on interest charges in order to protect those people living on the lowest incomes and Government action to promote affordable alternative sources of credit.  The UK is virtually alone amongst developed OECD economies in not having any form of legal cap on extortionate interest rates.

Fulcrum’s research focussed on Provident Financial plc, Britain’s largest doorstep lender, specialising in loans to the less well off, and those on benefits. Provident recently entered the FTSE 100, as the 96th largest company in the UK. Provident’s current average loan is £486 repayable over 45 weeks. Total charges on such a loan average £255. This gives rise to an APR of 185%.

Richard Murphy, of Fulcrum Accountants, responsible for the analysis said “It’s quite shocking to find that a company big enough to be in the FTSE 100 is charging such extraordinary rates of interest to the less well off in our society, yet an analysis of their own accounting data shows that is what they must be doing.”

Niall Cooper, National Coordinator of Church Action on Poverty and Chair of Debt on our Doorstep, said “We commissioned this research to support the submission we are making to the Department of Trade and Industry on the need for a statutory cap on the rates of interest that may be charged in the UK. It’s clear from this research that current rates are even higher than we anticipated and that there is a pressing need for such a cap”.

Pat Conaty of the New Economics notes that “What this report makes clear is that the market is failing to meet the needs of less well off. The extraordinary profits that are being made out of loans at APRs of at least 185% give no incentive for the market to change. Government must act now on behalf of the less well off in our society to ensure they have access to the sort of financial services the better off enjoy, and at reasonable cost”.

Richard Murphy highlighted another aspect of the findings of the report “It seems that Provident Financial is completely out of step with most current market practices leading to the very high charges it makes. For example, it home collects payments from its customers who are not offered an alternative way to pay in order to cut costs. If the government helped other organisations, like credit unions, become more actively involved in this market place then Provident Financial plc would have to reform its practices and cut its charges”.

The Submission by Debt on our Doorstep calls on Government to:

• introduce an interest rate cap, which is gradually introduced to prevent complete market disruption and which is formulaic, based on interest, loan duration and repayment method in order to allow for different product options

• proactively help new organisations to enter this market and offer more competitive products.
  

  The Observer: Crying need drives people to accept sky high rates

  The Guardian: Worrying approach of the Provy