Urban Forum is supporting a new campaign to put an end to predatory lenders charging extortionate amounts for loans. Here’s why…
How can 60% interest for a credit card be too high, but 60,000% is okay?
Whether or not it is morally acceptable to allow a lender to charge as much as they like for loans is debateable (actually, whilst some may wish to debate it, for me it is a matter of little debate!). What should be less open to discussion is that poor households spending a large proportion of their limited income on servicing debt is a barrier to raising themselves out of poverty. If we are serious in our commitment to social justice and ‘fairness’, as all the political parties claim to be, then we need to address the practical realities that poor communities face on a daily basis.
The home credit market is booming as the fallout from the recession brings economic hardship to many households. There are still millions of people who are excluded from mainstream financial services, despite more than a decade of attempts to tackle financial exclusion. The costs of financial exclusion are borne by society as a whole and, as the arguments in the Spirit Level illustrate, an unequal society is bad for all of us, not just for those at the bottom.
Many deprived communities have very little choice when it comes to accessing financial services. The lack of choice is stark for those excluded from mainstream finance; a predatory lender who might charge 10,000% APR, or a loanshark who might break your kneecaps if you’re late with a payment. That’s the reality – not choosing whether to take a loan out with RBS or HSBC.
Treasury research shows that there are 1,700 neighbourhoods without access to a free cash machine within one kilometre, meaning poor people have to pay to take their money out whilst more affluent people do not. In the UK we have only a third of the number of bank branches per million people that they have in Germany and only one-fifth of the number in Spain.
We ought to acknowledge one of the main reasons why the home credit market has prospered over recent years. It is because the banks have withdrawn from deprived areas. The same banks that received over £250bn of public money and that are now returning a sizeable profit to their shareholders. That they have been allowed to do this is an outrage, and urgent steps need to be taken to require (and incentivise) banks to serve poor communities, such as introducing a UK version of the US Community Reinvestment Act.
However it will take many years to ensure that financial services are provided equally and equitably in all communities. In the meantime, we need to address the lack of competition in financial service provision in poor areas by limiting what can legally be charged by lenders.
It is encouraging that the coalition government is keen on preventing credit card companies and store cards from charging too much for credit to consumers. But it is irrational and indefensible to accept that APRs of 30% are too high for one form or credit, but that APRs of 3,000% are acceptable in other forms of credit. Of course, the suspicion is that store cards and credit cards appeal to the large middle class which tends to decide the outcome of elections, but I am not as cynical as that.
I see this as a positive development, provided we can press home the absurdity of intervening to prevent one form of irresponsible lending whilst allowing companies that specifically target poor households to charge several thousand times more in interest rates for loans.
Urban Forum and the Better Banking Coalition are pleased to lend our support to the campaign to end legal loan sharking. Until we do, we cannot hope to address deep-rooted issues of financial and social exclusion in a fair and equitable way.
Find out more about the End Legal Loansharking campaign and lend your support: http://www.endlegalloansharks.org.uk/
 Cash Machines – Meeting Consumers Needs, Report of the ATM Working Group, HM Treasury (2006)
 Delivering the Post Bank, Post Bank Coalition (2009)
 See: Better Banking Coalition proposals: