Debt is now big business – and everyone is affected. Debt damages many people’s lives – and all the more so if you are already struggling on a low income. Church Action on Poverty’s latest report, Drowning in Debt, highlights the on-going injustices of modern day usury.
Take mum-of-five Donna, a member of our local partner organisation, Thrive in Stockton on Tees: “Everyone I know has doorstep lenders – family, friends. You don’t have the money to save when you’ve got children or you’re on benefits so you go to these places. But then you’re paying a thousand pounds for a second-hand washer. Our fridge freezer is reconditioned. But it will still cost us just under a grand. I had bailiffs coming to the door, and red letters all the time. I was scared to answer the phone. I was getting depressed. They threatened to come and take my goods from me if I didn’t pay. I was frightened. You’d get loan sharks in my neighbourhood coming to your door. You fall into it. They seem to target Christmas time, when they know people struggle. So you’re going to take that money just to give your kids a good Christmas.”
There has been an explosion in the market for payday loans in the last five years, since the credit crunch started to take its toll in the UK. However the problem of extortionate money lending has been around for a long time. Loan sharks have been operating in the UK for decades, preying on the most poor and vulnerable people and perpetuating the cycle of poverty.
When I first started campaigning on what is euphemistically called ‘high cost credit’, the bad boys on the block were doorstep lenders charging interest rates in excess of 170%apr. But more than one million people every month now take out ‘payday loans’ – short term loans typically in the region of £2-300 – at interest rates of up to a shocking 5,500% apr. Payday lenders are not only growing rapidly, but are also hugely profitable. In September, Wonga, the market leader, reported pre-tax profits of £84.5m for 2012, an increase of over a third on the previous year.
The repayments on a month-long payday loan can start off at an affordable rate, but quickly become unmanageable when payments cannot be made on time and loans are ‘rolled-over’ from one month to the next. People who borrow a few hundred pounds can end up paying back thousands. Half of the people who take out payday loans find that they cannot afford the repayments leading them to take out further loans and spiral into unmanageable debt.
For many people, borrow is the only way to pay for everyday expenditure on food, birthdays, school uniforms, Christmas, let alone a new cooker, or a weeks’ holiday once in a while. A recent survey commissioned by Which? revealed that 400,000 people are using payday loans to pay for food and fuel bills and 240,000 people are using the loans simply to pay off existing debts.
In previous generations usury – charging interest on lending money – was viewed as a sin and strongly condemned by the Church. The Israelites’ exile and enslavement in Egypt was a direct consequence of debt and economic misfortune “Our money is all spent.. There is nothing left… Buy us and our land in exchange for food. We with our land will become slaves to Pharaoh.. “
Now is the time for the Church to speak out about this modern day usury.
Current legislation in the UK offers vulnerable customers virtually no protection against unscrupulous or extortionate moneylenders. Interest rate ceilings apply in various forms in Germany, France, many US states, Canada, and Australia. Yet to date, the Government has resisted calls for the introduction of an interest rate ceiling in the UK.
Please send a message to the new Financial Conduct Authority asking them to make lenders behave responsibly http://action.church-poverty.org.uk/ea-action/action?ea.client.id=128&ea.campaign.id=22647
But beyond tighter regulation, what can be done? How can cheap credit be made available to those who need it most?
Credit Unions – mutual savings and loan cooperatives – provide a fantastic vehicle for mobilising the savings and assets of the whole community in an equitable and inclusive way. Walk down virtually any high street in Ireland, and you are likely to see the offices of the local Credit Union. In many areas in the UK churches have played a leading role in supporting the development of Credit Unions, providing space for weekly collection points, volunteers, committee members, and actively encouraging their own churches to join. The Archbishop of Canterbury, Justin Welby, is looking for the churches to champion their cause.
So have you joined your local credit union yet?
As ‘Jo’ said at a CAP event more than a decade ago: “People are still trapped in debt and poverty. When will change come?”