Legal loan sharks are licking their lips as the social fund is scrapped

By Pete Jefferys, policy and campaigns officer at the Co-operative Party

Amongst the more pernicious elements of the government’s welfare reform bill is the effective scrapping of the social fund, an interest free loan facility for the most financially vulnerable. The proposal is for the fund to be cut by 39 per cent and the rest passed on to local authorities without a ring-fence, which of course means that many councils will use the money elsewhere in their much reduced budgets.

Legal-loan-sharks The boon for legal loan sharking companies – which lend money at astronomical levels of interest – is obvious. The industry is clearly growing through the economic downturn; just witness the prevalence of new faces on the high street and web.

However since 2008 there has been no information on the size of the high cost credit sector, despite an Office for Fair Trading commitment to look into the issue.

Stories about people ending up in mountains of debt and even homelessness after taking high cost credit are starting to filter into the press. Given the unprecedented squeeze on household incomes currently ongoing and expected well into the future, these cases are likely to increase.

But just how much more expensive is high cost credit than other sources of consumer finance, such as from community co-operatives?

Recent analysis from Barnardo’s suggests there is a huge difference:

Barnardos-graph
What this data does not include, though, is the danger of the debt rolling over and thus accruing the thousands of percent of interest that legal loan sharks charge (APR).

Credit unions, community finance providers owned by their members, cannot charge more than 27 per cent APR and many charge less than this. One leading loan sharking company charges an APR of more than 4,000 per cent.

The industry should be much more transparent about the risks of high interest accruing on loans from certain lenders and the benefits of co-operative financial service providers.

The government should fulfil the spirit of its own child poverty strategy which warns that:

Unmanageable personal debt can drive a cycle of poverty and distress that is very difficult for families to escape.

The Co-operative Party believes that the government should step up action to tackle high cost credit and the spiralling debt it can cause. The government should:

• Implement a strategy to manage the supply and demand of high cost credit – focused on making the industry transparent and supporting affordable alternative such as credit unions. This should include annual assessments of the size, growth and geographical spread of high-cost lending by an appropriate authority.

• Support an easily accessible credit cost comparison website. The money advice service could provide such a service for consumers to compare how much a short term loan costs from all different providers – including credit unions – and highlight the risk of debt accrual from different providers. Current comparison sites fail to highlight these dangers and don’t always include credit unions.

• Look into time-limits on high cost loans to prevent massive debt accrual.

• Follow the lead of the Welsh government and aim to ensure that everyone in the UK has access to a credit union.

At the weekend, Co-operative Party activists and MPs were campaigning against legal loan sharks in Liverpool. We surveyed around 100 residents in the Norris Green area and found that there is huge support for our call for action on high cost credit (over 90 per cent).

We also found that one in three surveyed had not heard of credit unions – testimony that much more can be done to raise the profile of fair and affordable lenders.

Whilst this government presses ahead with callous welfare reforms – such as their aim to scrap the social fund – more and more families are being forced towards high cost lenders. If David Cameron is serious about a more moral capitalism, then he should take action to tackle the most predatory companies of all: legal loan sharks.

The Co-operative Party is campaigning for a fairer economy that puts people before profits. You can join the campaign here.

See also:

• Government needs to find a way to tackle high-cost lending – Johann Lamont MSP, December 2nd 2011

• Ignore Wonga’s spin; they’re still targeting students – Alex Hern, January 13th 2012

• Wonga target students with friendly advice: Take our 4000% loan – Alex Hern, January 11th 2012

• Need for affordable credit ‘big bang’ to aid low income communities – Kevin Gulliver, June 27th 2011

• Public sector mutuals are a good idea but the coalition just don’t get it – Michael Stephenson, November 18th 2010

Anonymous

I’m surprised.

You’re not in favour of people getting into debt.

On the other hand, you will borrow lots of money and force them to pay it off.

Ah yes, you get your cut as being a state loan shark, sending the boys round to get your money of the people to pay for your spending habit.

We also found that one in three surveyed had not heard of credit unions – testimony that much more can be done to raise the profile of fair and affordable lenders.

That’s why you changed the regulations to make it unaffordable to start one.
Anonymous

Unmanageable personal debt can drive a cycle of poverty and distress that is very difficult for families to escape.

=========

Nothing on public debt.

Just how is that poor person going to pay their fair share? 225,000 pounds rising with inflation
Mr. Sensible

Why do some people keep up these completely discredited comparisons between government and household debt?
Mr. Sensible

Why do some people keep up these completely discredited comparisons between government and household debt?
http://twitter.com/refinanceable/status/162660442899087360 Heath Lackey

Legal loan sharks are licking their lips as the social fund is scrapped: The industry should be much more transp… http://t.co/u75Stv31
http://twitter.com/mairemcsorley/status/162661038884524035 Máire McSorley

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/planetpmc/status/162665296992272385 : planetpmc

Legal loan sharks are licking their lips as the social fund scrapped http://t.co/Gh7FEixu
http://twitter.com/catherinbrunton/status/162671191407071232 Catherine Brunton

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/unite785/status/162673362605309952 Brnch Sec Ruth H

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/ashvini1467515/status/162673861278711808 ashvini jadhav

Legal loan sharks are licking their lips as the social fund is scrapped: The industry should be much more transp… http://t.co/P8qZIFL8
http://twitter.com/ashvini1467515/status/162673887241441280 ashvini jadhav

Legal loan sharks are licking their lips as the social fund is scrapped: The industry should be much more transp… http://t.co/RiZrj5EK
http://twitter.com/paulmgleeson/status/162676859987959808 Paul Gleeson

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/R9s1BXMM
http://twitter.com/pete_riches/status/162693904276258816 Pete Riches

RT @TheRightArticle Legal loan sharks are licking their lips as the social fund is scrapped – http://t.co/0LHINLBv
http://twitter.com/krisw6/status/162696575951446016 Kris Adrian

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/1957ajb/status/162812963630235648 Andy Birss

Loan sharks benefit from cuts to social fund http://t.co/YMANEfp6
http://twitter.com/4harrisons/status/162815581328916480 peter harrison

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/rzoqUFkY << all too true I'm afraid.
http://twitter.com/queensroad1989/status/162826069714550784 QRNC

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
Anonymous

In my area you have no chance of a social fund because you see a line of people waiting for the office to open they’d be the same drug addicts who always lined up once they had paid off the last loan to get another. It’s called the addict pre payment loan service, if you then saw a person who was desperate for a loan you knew it would be a waste of time phoning the council
http://twitter.com/skiptonriponclp/status/162833042350686210 Skipton & Ripon CLP

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/coopparty/status/162833948655890432 Co-operative Party

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/thatjoelfella/status/162834380690161665 HAL 9000

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/hjk29/status/162834452995780608 Howard Kaye

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/garypepworth/status/162834733552771073 Citizen Pepworth

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/darlodoug/status/162835280368369665 Doug James

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/coopparty/status/162835369161789441 Co-operative Party

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/darlodoug/status/162835570429657088 Doug James

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/aliqot/status/162835592772726785 aliqot

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/petejefferys/status/162835664847634432 Pete Jefferys

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/cllrmoneill/status/162836830880927744 Martin O’Neill

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/jryan298/status/162837715379945472 James Ryan

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/frnuk/status/162838366126227457 ReuseMatters

Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/9WUv96R8
http://twitter.com/badgerbrocks/status/162839356669833216 bryan

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/hjk29/status/162840423159709696 Howard Kaye

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/communityunion/status/162841496092024833 Community Union

As the government scraps funding for crisis loans, the legal loan shark industry will strengthen its grip on the… http://t.co/XnOYAJfH
http://twitter.com/christhegoth/status/162863906224742400 Christian Wilcox

As Taxpayers pay a Banker a £million bonus The Poor face this: http://t.co/5KhtLhtF. Not exactly fair. #Croydon #Labour ( @GavinBarwellMP )
http://twitter.com/DanielNSmith Daniel Smith

I recently took out a loan of over 4000% with Wonga.com I must say, so far they have behaved themselves impeccably and when I pay them off on Friday that will be the end of it. Interestingly, their justification was “if you take a taxi everywhere it will cost you a fortune.” So far, so good.
http://twitter.com/duncankeeling/status/162864270961418240 Duncan Keeling

As Taxpayers pay a Banker a £million bonus The Poor face this: http://t.co/5KhtLhtF. Not exactly fair. #Croydon #Labour ( @GavinBarwellMP )
http://twitter.com/sooper8/status/162865801823649792 Sooper8

Whilst taxpayers are paying £1m for #Hester's bonus, the government is scrapping crisis loans for the most vulnerable http://t.co/Gz8DUILM
http://twitter.com/unitonehifi/status/162866075145482240 chris star

Legal loan sharks are licking their lips as the social fund is scrapped..
http://t.co/8JQeAm3A
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http://twitter.com/barnardos/status/162868270624546816 Barnardo’s

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/i_breo/status/162868512686211072 IBreo

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/pCOtlsvd
http://twitter.com/rory_a_dunne/status/162868853418901504 Rory Dunne

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/corinnescotland/status/162869220194009089 Corinne Scotland

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/bacco_j04/status/162871410463748096 james clark.

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/xugla/status/162951805989433344 Kanjin Tor

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/oCTK0wxk #ppnews #wrb #spartacusreport
http://twitter.com/rosenamc/status/162952211490549760 Rosena McKeown

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/oCTK0wxk #ppnews #wrb #spartacusreport
http://twitter.com/innerwisdom1/status/162955745023901696 Innerwisdom

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/oCTK0wxk #ppnews #wrb #spartacusreport
http://twitter.com/seasidemobster/status/162962067878457344 Ivan Mathers

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/dancareydawes/status/163018481439219712 Daniel Carey-Dawes

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/jennettearnold/status/163022779560632320 JennetteArnoldAM

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://twitter.com/samtarry/status/163029469815250944 Samuel Tarry

RT @leftfootfwd: Legal loan sharks are licking their lips as social fund is scrapped writes @coopparty’s @PeteJefferys: http://t.co/eQFfRdIJ
http://twitter.com/neilrfoster/status/163031269876305921 neilrfoster

RT @leftfootfwd: Legal loan sharks are licking their lips as social fund is scrapped writes @coopparty’s @PeteJefferys: http://t.co/eQFfRdIJ
http://twitter.com/pennypitstop87/status/163035276778811392 PennyP

RT @leftfootfwd: Legal loan sharks are licking their lips as social fund is scrapped writes @coopparty’s @PeteJefferys: http://t.co/eQFfRdIJ
http://twitter.com/gemma1981/status/163061156238458880 Gemma

RT @leftfootfwd: Legal loan sharks are licking their lips as the social fund is scrapped http://t.co/clGCtRPU
http://twitter.com/Newsbot9 Newsbot9

And how are you going to play the eleventy zillion pounds you own to zod the martin? It’s a more relevant question!
http://twitter.com/soulcherry64/status/164276702107795457 amanda elliot

Legal loan sharks are licking their lips as the social fund is scrapped, writes @coopparty’s @PeteJefferys: http://t.co/lZByrx0K
http://www.leftfootforward.org/2012/02/betting-shops-blighting-high-streets-councils-cannot-take-action/ Betting shops are blighting our high streets, and councils can’t take action | Left Foot Forward

[...] also: • Legal loan sharks are licking their lips as the social fund is scrapped – Pete Jefferys, January 26th [...]