The Real Cost of Christmas: assessing the impact of illegal money lending on consumers
15 January 2010
Today, Circle Anglia published a new report produced by The Financial Inclusion Centre 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.
