[A-List] UK consumer credit crunch

["Michael Keaney" <michael.keaney@xxxxxx>]

The agony of living with debt on your doorstep

Report highlights estate where 65% of homes pay a third of their income to
credit companies

Felicity Lawrence, consumer affairs correspondent
Monday December 2, 2002
The Guardian

They know they are hooked, and like addicts they can vividly remember the
first time they were made the offer that tempted them into the downward
spiral. A brief splurge of pleasure when the door to door loan merchants
handed them £70 of vouchers - then years struggling to pay off interest
rates of between 164% and more than 1,000%.

For the residents of the Meadowell estate on Tyneside, debt is blighting
their lives, a report published tomorrow reveals. The survey of three
typical streets on the estate by the Debt on our Doorstep campaign shows
that 85% of households are paying nearly a third of their weekly income to
door-to-door credit companies.

The average weekly income is £200 a week; of that an average of £60 is going
to pay loans with interest rates which are many times the rates charged on
the high street. Between them the three streets are paying £374,400 a year
to money lenders.

The estate, built in the 1930s when jobs nearby in shipping and mining were
plentiful, was devastated by riots in 1992, and has since received
government regeneration money. Many of its residents are in council housing
and on benefit. But problems with debt are just as acute for those in
low-paid jobs, the survey has found. Similar problems can be found on
deprived estates around the country, the campaigners will say at a rally in
London tomorrow. More than one sixth of the estate's income is disappearing
in interest charges. In the weeks up to Christmas, the households expect to
get deeper into debt.

Pat is a typical victim of this easy but expensive credit. She had just been
rehoused in a council house in Meadowell, escaping from a violent marriage
with her two children, when the man from the "Provy" knocked at the door.
"He said he'd give me a £70 voucher to spend and it would be £3 a week to
pay it back. I had to pay back £85, but you're sitting there with nothing.
You're not going to say no."

Pat, who had worked in a hospital before having children, was struggling to
make her income support stretch to cover her food, fuel bills and nappies.
Before she had paid off her first loan, a salesman from another credit
company, Shopacheck, came to the door offering more vouchers. She took them
and an other loan to help clear the first. "I knew I was getting into debt
but I needed it for the kids, just to survive that day."

Then the agents from the Provy and Shopacheck were back offering things she
needed from catalogues. "Hoovers, curtains, what you want to make a home. It
was very tempting. You can have it now instead of having to save."

She borrowed to get a TV from Shopacheck with a meter on the top, £4 a week
going into the slot to pay for it with interest, and to give her a few hours
viewing a day. Before long most of her income support was committed each
week to repaying debts. She started to feel suicidal. She knows people who
have sold their benefit books, £400 of welfare cheques for as little as £200
cash. She took "fiddle jobs" instead, cheating on social security. But she
got caught. Eventually her debts were frozen and she is paying them off one
by one, but she expects to splash out at Christmas for the children.

The Provy is what the locals call Provident Financial, the company which has
a 40% share of the market in doorstep credit and last year posted £150m
pre-tax profits on the repayments it collected from its 1.57m customers.

Rose's partner, Neil, who had lost his factory job and was feeling isolated,
borrowed £100 from the Provy without telling her, to pay for fishing tackle
so that he could go out with his friends. The couple, who have three
children, had to repay £130, and she cut down on food for months to do so.

With £30 of the loan still outstanding, she was offered another by the Provy
for £200. "They took out the £30, plus £10 for the first payment on the next
loan, and left us with £160 cash. We had to pay it back over 52 weeks at
£10-£12 a fortnight. I felt so betrayed by my partner."

As the pattern repeated itself, and more and more of their income was going
into interest payments, Rose, a former highly skilled hospital worker, found
the stress intolerable. She suffered a nervous breakdown. Receiving extra
money in the form of disability living allowance has pushed her income up to
a level at which she has become eligible for mainstream credit from banks.
They now have several thousand pounds of debts on their cards but, at 14.9%,
the interest rates are a fraction of what they used to pay.

Peer pressure

Neil partly blames peer pressure for his debt problems. "I've had Provys in
the past and got so desperate I'd break into the meter on the TV to steal
the money. You want your kids to be equal otherwise they'll be targets. The
kids say, You've got snide trainers, you're a tramp," he says.

A spokesperson for the Provident said that its charges were not high in
relation to the service it provided. "This is a service that our customers
value and for which they are prepared to pay."

Shopacheck's corporate affairs director Greg Stevens said: "We provide a
service on the basis of affordability which is part of the community. The
majority of customers give us a high rating in satisfaction surveys," he
said.

Margaret Nolan, who has lived on Meadowell for 30 years, and conducted the
debt survey, does not agree. She set up a credit union to help those on low
incomes but is angry that millions of pounds is going out of the community
without employing anyone locally. "Most of these people get into debt
because of emergency circumstances - the children need new clothes, they
have to make a hospital visit. They can't shop around so they end up paying
more. It's a downward spiral we have to break."

Some names in this article have been changed.

Easy pickings for predators

Predatory lending is stripping out money from poor neighbourhoods in the UK,
says the New Economics Foundation thinktank. Its new report, Profiting from
Poverty, points out:

· A typical APR charged on a doorstep loan of £100 paid back over 52 weeks
is 164%. On a short six-week loan of £60, APRs are typically 500%. Loans
with APRs of 1,000% are not uncommon.

· Since the 1970s the UK has had no statutory ceiling on the amount of
interest that can be charged on a loan.

· The UK is one of the few European countries not to control the excesses of
consumer credit companies through a cap on interest rates.

· One in five adults in the UK is systematically denied access to mainstream
credit from banks.

· Less secure employment has led to a rise in predatory lending.

· Less than 1% of the UK population uses a credit union, which typically
charges just 1% interest on loans made to those who have saved with them
first.