A rapidly escalating consequence of the dire economic and impoverished situation many people in the north east find themselves in is the abhorrent exploitation of finance providers such as payday loans, legal loan sharks and credit organisations providing domestic goods. Many very low-paid and unemployed workers are faced with the experience of not being able to secure bank accounts or have poor credit ratings that exclude them from reasonably priced credit.
This leaves these families vulnerable to being ripped off by some of the most extortionate organisations in the UK.
This is a highly profitable, fast growing industry; nearly 4 million people will take out a pay day loan in the next six months. But it is one which relies absolutely on people being in such a desperate situation that they feel they have no choice but to sign up to loans and credit that have phenomenally excessive costs associated with them. Wonga, who have, to the disappointment of the fan base, recently secured Newcastle United's shirt sponsorship, has seen after tax earnings grow from £12.4m to £45.8m in 2011.
Pay day loans charge incredible rates of interest on loans, as much as 4,200 per cent interest charges have been found as the terms are extended for longer and longer, the total repaid being incomprehensible to the initial loan amount. 'Rent to own' companies are equally dangerous, but often perceived as the only source of domestic goods for impoverished households. A two-seater sofa from Brighthouse may have an already high cash price of around £860, but paid for weekly, over 3 years, the total costs is nearly double that. The zero per cent interest deals offered by other furniture manufacturers are simply unreachable by families without bank accounts or decent credit ratings.
It is overwhelmingly the poorest who are trapped into succumbing to these high cost arrangements. In fact, 69 per cent of low-income households use some form of credit, a report by BIS last year showed one in five households that borrowed money had an income of less than £13,500. Groups such as lone parents, unemployed workers and those in social housing are particularly vulnerable, with over 40 per cent using high cost products and having debts at 60 per cent of their income.
The long-term damage to families and communities is massive. Financial exclusion and exploitation on this scale leaves deep scars, with long-term impacts on health, wellbeing and other factors that cost us all socially and economically.
MPs such as Stella Creasy along with Bishop Justin Welby and Dame Tanni Grey-Thompson have challenged the government to address this situation. There is simply no moral or economic justification for the extortionate interest rates charged by these legal loan sharks. Many countries place a cap on the total cost of credit. It is surely time this government recognised the damage being done in communities throughout the UK and acted to stop this reckless exploitation by placing a statutory cap on credit costs.
Issued: 3 December, 2012