The finances of many low income households are on a knife edge. Low pay, flexible working patterns, reducing state support, and the high cost of rent and other essentials make day to day budget management difficult and saving for the future incredibly so. For many households the breakdown of a washing machine, fridge or cooker is a major crisis. All too often the only place they have previously been able to turn is the high cost credit sector, including payday lenders and Rent to Own ('RTO') stores such as BrightHouse.
That has now changed. Fair for You is providing a real alternative to the high cost lenders. It's not just cheaper, allowing more money to be retained in low income families and communities, but the standard of service is high and customers are treated with respect.
Fair for You has been trading for three months, making small loans to customers to buy brand new household items from Indesit and Whirlpool. It has also recently expanded its range to include cots and beds. These items are sold at regular high street prices, on credit terms that people can genuinely afford, and with the repayment flexibility that people need. Even if Fair for You is unable to make a loan it provides support by signposting people for benefit and grant checks through Turn 2 Us.
Our social impact report shows in stark terms the difference between Fair for You's approach and that of the RTO firms, which often inflate the cash prices of items and then add on credit and other charges which result in people being ripped off.
The report features the stories of real people, the majority of whom are hard-working but low paid families struggling to get by. For these families, Fair for You is a lifeline without which they would have to enter into three year-long RTO contracts. These leave the goods open to repossession in the event of payment difficulties, and incorporate unnecessary warranties and insurance products to drive the total cost of the items skyward.
With Fair for You, the customer owns the goods from day one; payment periods are much shorter, and because they do not inflate their prices or add on unnecessary additional fees, the savings to households are huge.
But just as importantly, our report details how Fair for You improves the way their customers feel about themselves: how they take pride in having a 'normal' standard of living, are able to cook a family meal, and how their personal well being is improved.
Key points from the Social Impact Report
- The All Party Parliamentary Group on Debt and Personal Finance has expressed concern about the high cost of RTO agreements, poor affordability assessments conducted by many of the firms, and the heavy-handed tactics that they employ when customers are in financial difficulty. As a consequence, the Financial Conduct Authority brought forward its timescale for putting RTO firms through its authorisation process. To date no firms have obtained full authorisation. In contrast, Fair for You has obtained full authorisation
- Problems in the RTO sector include the high cost of goods, which are purchased under lengthy conditional sale agreements. These are almost all three years long. Church Action on Poverty has calculated that if a BrightHouse customer were to purchase a fridge freezer of the same model through Fair for You, and make the same weekly payments, then the Fair for You loan would be fully repaid within only 69 weeks.
- The shorter time-frame of Fair for You loans, combined with the fact that the customer owns the item from day one, means that they do not require extended warranties or are forced to take out expensive insurances.
- Although credit unions and other forms of community finance lenders exist, these are often only available to people living within defined local areas and have struggled to gain profile and get to scale. Fair for You has a national on-line presence, and is open for business throughout the UK.
- Fair for You is reaching the cutomers that have previously been using RTO firms, and they recognise the difference. The cost savings of borrowing from Fair for You mean that customers are better able to heat their homes, feed and clothe their children, and buy other essential items that they could previously not afford as a result.
- Many of Fair for You's customers have been going without essential items, or using inefficient appliances, for some time. Lower income single parents often have to either rely on family and friends, or face much higher costs and greater inconvenience because they have to buy microwave meals, travel to launderettes, and are unable to store food in bulk.
- For households containing people with long term illnesses, including mental health problems and disabilities, going without basic appliances often constituted an emergency, and led them into using RTO firms and other high cost lenders out of desperation. Using Fair for You makes customers feel valued, and that they are being treated with respect, and that feeds through into more general and positive personal well-being.
- Fair for You has put in place a flexible and supportive approach for people experiencing financial problems. They maintain contact with their customers and help them to reschedule payments at no additional cost so that that these remain manageable when circumstances change.
- More needs to be done to help get Fair for You to scale. Councils, housing associations, and the voluntary and community sector should include information about Fair for You in their newsletters and communications with residents, tenants, and service users and feature the types of Fair for You case studies to illustrate when a loan from them is likely to help.
The full report is now available from our website at www.responsible-credit.org.uk/evaluating-the-social-impact-of-fair-for-you/
The Centre for Responsible Credit is a dedicated policy unit of Learning and Work Institute.
Also recent CfRC research:
January 2016: Using Insight and Innovation to Benefit Low Income Households
Over the past forty years the well being of households and businesses has become increasingly dependent on their relationship with financial services. Financial services offer the potential to help manage fluctuations in income and expenditure, build resilience against future shocks, and provide the means for people to take advantage of opportunities. Yet far too many people and businesses are struggling to achieve these positive outcomes: with low to middle income households and small businesses in particular finding it difficult to access and use financial products and services which are affordable and appropriate to their needs.
Link: www.responsible-credit.org.uk/using-insight-and-innovation-to-benefit-low-income-households/ |
