Does debt advice pay? A business case for social landlords
Deteriorating economic conditions, changes to the welfare benefits system and the squeeze on household incomes are likely to exacerbate the financial stress faced by financially vulnerable residents in the social housing sector.
Equally, these are extremely challenging times for sector itself. The deteriorating financial outlook for residents will have a knock-on effect for landlords with rent arrears expected to grow, together with the costs associated with the rising numbers of court and eviction actions. Moreover, the impact of welfare changes are already being felt by social landlords[1], despite the consequences of major housing benefit reforms particularly direct payment of housing benefit via Universal Credit still to be felt.
Identifying effective debt advice interventions that help financially vulnerable residents manage their finances and deliver commercial benefits for social landlords is therefore critical and extremely timely for the sector. There is a prima facie case for social landlords investing resources in debt advice. The potential mutual benefits and evidence from the private sector demonstrates how over-indebted consumers benefit from funded specialist debt advice[2].
Yet, there has been little objective corresponding evaluation of the potential benefits of debt advice for social landlords. The Financial Inclusion Centre was commissioned by a number of leading housing associations funded by Friends Provident Foundation to evaluate the effectiveness of providing access to debt advice to residents and establish a business case for extending access to advice.
Details of the project and copies of the report can be found here: Debt Advice
[1]The National Federation of ALMOs (NFA) is already reporting arrears increases amongst its members following changes to non- dependent benefit deductions (NDD) in April 2011.
[2]Wells, J. Leston, J., Gostelow, M. (2010) - The Impact of Independent Debt Advice Services on the UK Credit Industry. Friends Provident Foundation.
Debt and the Family Series National debt charity Consumer Credit Counselling Service (CCCS) commissioned a series of three reports called Debt and The Family which will look at the impact of debt and changing economic conditions on financially vulnerable households in the UK.
Further details and the reports can be found here Debt and Family
Report 1: Debt and Household Incomes The first report looks at the position of the two main groups of households who seem most at risk – benefit reliant/ lowest income households and lower-medium income households (sometimes referred to the ‘squeezed middle’). The focus is on household incomes as this determines levels of debt and ability to service debt costs. However, we have also looked at the position of specific groups in society such as lone parents, the unemployed, households who rent, and consumers with low levels of financial capability as this can be a more effective way of structuring any necessary policy interventions.
Report 2: Debt and the Generations The second report looks at the impact of debt on different generations of households using published research and new analysis of CCCS' unrivalled database. As the UK economy enters a new difficult phase, many households face hard times and uncertainty. Personal debt will be one of the single biggest influences on the quality of household finances in the UK and indeed on the sustainability and behaviours of the financial services industry. It is paramount that we understand the impact of debt on different generations.
London Citizens Money Mentors programme
As part of its response to the economic and financial crisis, London Citizens - the UK's largest community alliance - developed an innovative, peer-to-peer financial literacy programme for secondary school students around London called Money Mentors.
The Financial Inclusion Centre was asked by London Citizens to evaluate the effectiveness of the 2010 Money Mentors programme and recommend ideas for improving the 2011 programme and a new community based initiative called Money Mentors Academy.
Details of the evaluation can be found at: Money Mentors
The Real Cost of Christmas: assessing the impact of illegal money lending on consumers
A new report produced by The Financial Inclusion Centre for Circle Anglia on the potential impact of illegal loan shark lending on vulnerable consumers at Christmas.
The key findings include: up to 100,000 households turned to loan sharks at Christmas 2009; the value of illegal loans taken out at Christmas 2009 was an estimated £29m but victims will end up repaying a total of £82m; the average cost for these illegal Christmas loans was equivalent to 825% APR; a consumer borrowing a typical amount of £288 from an illegal lender would end up paying back nearly three times this amount (£820); it will take more than a year for the typical family to repay their Christmas debts; but borrowing from a third sector community based lender such as a credit union instead of a loan shark would save a typical low income household £500 (based on the original loan of £288).
The report was produced by Gareth Evans and Mick McAteer from the Centre. To obtain the report, please click below:
Feast to famine The report, commissioned by Consumer Focus, sets out how consumers on low incomes with no savings are being hit hardest as high street lending dries up – and many will be forced to borrow from unregulated, sub-prime money lenders unless Government makes new, affordable forms of credit available.
Gross lending is down 60 per cent on this time last year² leaving many desperate consumers with little choice but to turn to the informal, sub-prime lending sector – often known for extreme rates of interest (sometimes over 1000 per cent APR), unfair terms and conditions, and at worst, illegal scams and aggressive sales tactics.
The authors note that while past lending excesses need reigning in, access to credit in the short-term can be vital for vulnerable consumers – such as those who have been made redundant and need short-term loans until benefit or payment protection insurance (PPI) payments take affect.
The report is intended to stimulate debate and calls on Government to consider a range of options in developing its G20 assistance package to make new, more affordable forms of credit available.
Are banks and building societies playing fair? - the price consumers are paying for banks and building societies not passing on cuts in benchmark interest rates
The report demonstrates the extent to which lenders used the dramatic cut in interest rates in 2008 to increase the margins on mortgages, overdrafts and credit cards.
Reforming the financial system In light of the ongoing financial crisis, this new report sets out the need for radical reform of the financial services industry and puts forward proposals for that reform. The report was commissioned by Unite the union to explore how the financial system can be reformed so that it meets the needs of society and reduce the risk of a similar crisis recurring.
Northern Ireland consumers pay more for insurance The Consumer Council of Northern Ireland commissioned the Centre to investigate whether Northern Ireland consumers are paying more for insurance. The report found that at an aggregate level Northern Ireland households are paying around £160 million a year more compared to similar households in GB. The report found worrying levels of financial exclusion in insurance and makes a number of recommendations on how to address the detriment in insurance markets in Northern Ireland.
This contains the detailed research findings and analysis we undertook for the report. It contains estimates of how many consumers are affected by the credit crunch and other market changes.
This section contains the Centre’s responses to major consultations issued by the Government and regulators.
Reforming financial markets consultation - response by The Financial Inclusion Centre
The Financial Inclusion Centre submitted its response to HM Treasury's important consultation on reforming financial markets. The Centre argues that the priorities for government intervention and financial market reforms should be to reform financial markets so that they are:
fair and inclusive;
efficient and competitive;
sustainable and produce socially useful products and services;
well governed and accountable to consumers and wider society;
stable and secure; and
properly and robustly regulated.
While complacency must be avoided due to the risk of a secondary banking crisis, interventions by policymakers do seem to have been successful in rescuing and stabilising the banking and financial system and the worst of the immediate crisis may have passed. However, we must not forget how the financial crisis has affected the most vulnerable consumers in the form of higher unemployment, repossessions and arrears, and exposure to financial scams and arrears. The Centre calls on the Government to launch a new Financial Crisis Action Plan to protect the most vulnerable consumers from the crisis and ensure consumer financial needs are met in future.
Financial Inclusion: Ensuring access to a basic bank - European Commission Consultation document
This contains a joint response from the Centre and the Community Development Finance Association (CDFA) to the European Commission's consultation on how to ensure European Union citizens have access to a basic bank account.
Banking reform – protecting consumers: a discussion paper
This contains the Centre’s response to the discussion paper issued by HM Treasury, the Financial Services Authority, and the Bank of England on reforming the deposit protection scheme in light of the Northern Rock scandal.
This article sets out a vision for new model regulation that strikes the right balance between protecting consumers and promoting efficient retail financial markets.
This sets out views on the new system of Personal Accounts due to be introduced in 2012, why these will be good for ordinary consumers, and what more needs to be done to reform the pensions system.
