The figures are stark, if Leeds residents borrowed money at normal bank rates of interest, collectively we would save £60m. That’s £60m that can be spent on food, clothing and not being in arrears. It’s £60m circulating in the Leeds economy, being spent in Leeds shops, and not disappearing to faraway shareholders.
What is high cost lending? It ranges from the doorstep lenders – “the man from the Provi”, to the ubiquitous “Payday” lenders such as Wonga, through to illegal loan sharks. The interest rates range as well, from 400% APR to 4,000% APR to your kneecaps (there’s no APR on those).
APR stands for the annual percentage rate. How much interest you pay over a year as a percentage of the amount you borrowed. Payday lenders will tell you not to worry about it because you’re not borrowing for year, just until next month. In fact their business relies on you not paying next month, but “rolling over” and then the interest becomes very real as the debt spirals out of control and becomes impossible to clear.
The man from the Provi and the loan shark have your address and will come and find you. The Payday lender has your bank account. Loans are paid by Direct Debit – you have given them the right to take money from your account. If the Direct Debit can’t be paid for lack of funds in your bank account, they will keep trying until they find your payday. They will make sure they are first to your salary and they won’t care what’s left for you to pay your rent or mortgage, buy food or your bus fare to work.
Borrowing money for a one-off item is not a sin, we all do it. Borrowing money for day to day expenses such as food, rent or the gas bill isn’t a sin either, but it is a problem. And a loan is unlikely to solve it, in fact it will probably make things worse. If you can’t afford your day to day living costs from your income, how are you going to afford the loan repayments?
Christmas is coming and you don’t want to let the kids down. Luckily the “friendly local agent” from the Provi is on hand with a solution. They can give you an Argos voucher with no repayments until after Christmas. Problem solved? No, problem delayed. The interest rate is 750% so the £200 voucher ends up costing you £300.
Is there any alternative when the high street banks won’t entertain you?
Lots of people in this country still don’t know what a credit union is. It is a financial co-operative which means it is owned by its members and all the benefits are for members alone. There are no profits syphoned off to big shareholders. Since the members come first, the interest rates are affordable – that £200 Christmas loan would cost just £210 at the Credit Union.
Popular music fact: Motown Records was started with a loan from their local credit union.
I’ve heard complaints that the credit union isn’t a realistic alternative for many people.
“You have to save with them so it costs just as much in the end.” This fails to spot that the money you put into your saving account remains yours. It’s there next time you need a loan so you don’t have to borrow as much.
“You can’t get a loan as quickly as Wonga”. Maybe not, but you can talk to someone and get advice about managing your money.
“They are not on my doorstep” Not literally, no, but there are two branches in South Leeds, at St George’s Centre in Middleton and at Dewsbury Road One Stop Centre. Compare that to the banks who have retreated from South Leeds. The Yorkshire Bank in Middleton, NatWest in Hunslet and HSBC in Beeston have all closed this year.
At today’s conference, Leeds City Council is launching its Take A Stand campaign. Watch the video and sign up if you agree that its time to take a stand against the high cost lenders. And then talk to your friends and neighbours and tell them that there is an alternative.
I’ll be back next week with more of my views from South of the River. If you’re on Twitter, you can follow me: @BeestonJeremy.