Nine million people in the UK don’t have access to credit from banks, so have no choice but to use rip-off lenders. The cost of a £100 loan with a company such as Provident Financial can be £49.50 – nearly 50% of the amount borrowed, or an APR of 545.2%.
A loan from a payday lender costs even more; to borrow £100, lenders charge £25 for one month – an annual percentage rate of nearly 1,300%. These lenders charge whatever they want – the sky is the limit, according to a new report from the New Economics Foundation (NEF) launched today.
Two thousand people from more than 150 civil society organisations will gather at the Barbican Centre in the City of London this evening to call for a cap on interest rates and the extension of the London “living wage” (a paltry £7.60 an hour). Concerned at the impact of the financial crisis on ordinary people, the capital’s largest civic alliance is calling for the measures in order to “soften the impact” of the financial crisis.
Among those responding to the five-point call by London Citizens will be politicians from the main parties (Stephen Timms, New Labour's Financial Secretary to the Treasury, Greg Hands, Tory Shadow Treasury Minister, Vince Cable, Lib Dems, Shadow Chancellor of the Exchequer), representatives of leading financiers (the British Bankers’ Association, the Corporation of London, Barclays, KPMG) and bodies such as Fair Finance and moneysavingexpert.com.
The NEF study by Veronika Thiel reveals that three million UK households pay hundreds of thousands to “legal loan sharks” because of lack of access to credit from banks. London Citizens and NEF argue that the UK should follow the example of major European countries and introduce a 20% cap on the cost of lending by financial institutions, thus making borrowing at interest rates of 50% or 500% illegal.
“Despite historically low interest rates and a massive taxpayer bailout of the banks, ordinary people across London have been forced into the hands of legal loan sharks in order to gain access to credit,” says Paul Regan, London Citizens trustee. “It’s time to restore responsibility.”
When was this golden age of “responsibility” to which we should return, you may ask? Forget about loans sharks for a moment, who have existed since time immemorial. Mainstream bankers do not hesitate to repossess homeowners behind with their mortgages, refuse small businesses vital bridging loans, impose harsh penalties on those who stray into overdraft territory, sack their staff, speculate with other people’s money and generally act as a millstone around society’s neck.
The state’s “responsibility” is to the bankers and whatever cosmetic changes may be promised in relation to loan sharks, that won’t change. In fact, it’s about to get a whole lot worse as politicians of all parties busy themselves preparing plans for an historically unprecedented assault on public expenditure.
Only hours before the London meeting more evidence of New Labour’s real priorities was revealed. One year ago, at the direst moment of the financial meltdown they approved £61.6bn in emergency funds to the Royal Bank of Scotland and HBOS. The banks and the authorities decided to keep the operation secret. Alistair Darling, chancellor, said he had shared the Bank’s assessment that disclosing details of the lending to the two banks “would seriously jeopardise the financial stability of the system as a whole”. There's clearly no lack of credit for the bankers.
London Citizens are well meaning in their bid to curb the loan sharks. But the system is broken and now is the time to ask the bigger questions: What exactly is the capitalist financial system for? What benefits, if any, does it bring to the majority of people? Why should it be bailed out? Why not close it down and start again on the basis of mutually-owned and run banks that serve society?