Welcome to Credit Notes | Issue 2 | Free trial continuing through to end of May
As well as producing Credit Notes, we shall shortly be publishing our first quarterly e-journal, The CfRC Credit Report, providing more in-depth articles from the Centre and external contributors. In addition, our subscribers and supporters also receive a 10% discount on delegate fees at all our events over the next 12 months.
Welcome to the second edition of Credit Notes, our new e-briefing for CfRC subscribers for 2014. Credit Notes is designed to provide you with a regular update on the latest policy developments alongside news and comment from the Centre. The service is available to our annual subscribers through to 31st March 2015, and is being made available on a free trial basis to our full contact list until the end of May. If you are not currently one of our subscribers but wish to continue to receive Credit Notes throughout the year, then please check out our subscription rates and place your order here.
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Britain's Personal Debt Crisis | New book from CfRC Director, Damon Gibbons is out now!
A new book by CfRC Director, Damon Gibbons, has been published by Searching Finance. The book details the development of Britain's credit markets over the past forty years, and argues that we are in the midst of an ongoing process of credit booms and busts, which will continue with increasing severity unless radical action is taken to reduce the demand for credit as the means of securing basic life outcomes, including access to education; to a decent home; and dignity in retirement.
The book calls for a major programme of household debt restructuring and for the refocusing of lending on enterprise, together with much greater investment in house building and action to tackle the regressive nature of financial services pricing, which lies behind much of the growth in wealth inequality in Britain today.
For further details, and to order a copy of the book for £7.99 (plus postage) visit the the Searching Finance website here.
Children's Society launches new campaign to 'end the debt trap and its damage to children'
A new report, published jointly by the Children's Society and StepChange highlights the damage that debt problems are causing to the nation's children. According to the report, around two and a half million children are living in families affected by problem debt and many more are living in families that are on a financial knife edge.
The report identifies that households with children are more likely to be at risk of debt problems than other household types and breaks new ground by identifying how living in a family with debt problems impacts on the children themselves. It was informed by a literature review undertaken by CfRC for the Children's Society, which then led onto a survey of 2,000 families with children aged between 10 and 17 and to qualitative interviews with 14 families, including in many cases, interviews with the children.
The 'stark findings' of the report reveal that every aspect of children's lives - from access to basic necessities, through to family relationships and school experiences - can be affected by the presence and consequences of household debt. Children suffer from the existence of debt in direct ways, such as problems with their own mental health and well-being, the effect of material deprivation caused by the existence of problem debt and income fragility, and the disruption of their lives in terms of housing, family stability and school experiences.
The report contains a number of recommendations to reduce the risk of indebtedness amongst families and calls for action to be taken by creditors and local authorities to reduce the impact of debt, by creating a 'breathing space' for families in financial difficulties and by making sure that collection practices are more sensitive to the potential impact that they may have on children.
As well as publishing the report the Children's Society has an animation on its website which details its main findings and recommendations, and which asks for people to add their support to the campaign. For further details click here.
Payday lender business models are inherently exploitative
The Association of Chartered Certificated Accountants ('ACCA') has published an excellent new report by Sarah Beddows and Mick McAteer from the Financial Inclusion Centre which provides an analysis of online payday lender business models. The analysis is based on financial returns from the larger payday lending companies, including Wonga and reveals how the profitability of these is reliant on repeat business. The findings are also supported by recent working papers published by the Competition and Markets Authority as part of its inquiry into payday lending, which highlight large scale repeat use of the payday product as well as simultaneous borrowing from multiple lenders by many users.
The ACCA report indicates that the payday product is inherently irresponsible, and that demanding full repayment of the principal and interest costs within such short periods of between 14 and 30 days inevitably causes many borrowers difficulty and creates a demand for rollover or repeat borrowing. The high customer acquisition costs associated with online lending, and the considerable level of default which arise from inadequate affordability assessments, mean that lenders need to repeatedly exploit those borrowers who do go on to pay them back in order to be profitable. If the product was used as advertised then it would, according to this analysis, be loss making.
The report implies that regulating to ensure that borrowers have longer to repay, alongside a cap on the total cost of credit, could be effective in ensuring that the product better meets the needs of low to middle income households facing short-term liquidity problems.
The report is available here
Major changes to the way bailiffs can enforce debt repayment now in force in England and Wales
New rules governing the activities of bailiffs came into force in England and Wales on 6th April.
The rules introduce a system of fixed fees; require mandatory training and certification; and ban bailiffs from entering homes at night and from using physical force against debtors. It also becomes unlawful for bailiffs to take essential household items like washing machines or to enter homes when only children are present. Citizens Advice has welcomed the news, but called for further protections. In particular, they are pushing for a licensing system to be introduced, which would lead to firms being 'struck off' in the event that their bailiffs break the rules.
Citizens Advice launches new initiative to share local practice in response to welfare reform
Citizens Advice has launched the 'Making welfare work locally' project, which is designed to encourage the sharing of good practice amongst local agencies to help them better deal with the impacts of welfare reform. Examples of good practice can be submitted to Citizens Advice and shared across the new network. Specific examples are currently being sought in respect of work being done to help people affected by the bedroom tax and benefit cap. You can find further details of the network and join a LinkedIn group to obtain news and details of good practice here.
Affordable lending: do we really have a vision?
CfRC Director, Damon Gibbons, has penned a brief blog for New Start magazine which calls for fresh thinking about how we can deliver more affordable credit products to low income communities.
Criticising the current structural divide between credit unions and CDFIs, neither of which are able to compete with the growing high cost credit sector, Gibbons argues for the creation of 'a coherent national network of new mutually-owned financial institutions, providing a consistent offer in every area of the country'. Steps along the way to this include providing more freedoms to larger credit unions, including:
- The removal of the interest rate cap on credit unions;
- Permission to raise capital from social finance intermediaries as well as from depositors;
- Freedom to develop jointly-funded vehicles to support the delivery of national initiatives of mutual benefit, including, for example, the delivery of national marketing campaigns to attract new members and to take forward the work to develop and improve back office functions that has thus far been taken forwards within the credit union expansion project.
- Investment from the Bank of England's QE programme to be diverted away from banks and into the third sector's lending institutions.
Finally, the article calls for a conference of credit unions, CDFIs, government and the Bank of England to be organised to kick start the development of a strategy (owned by the Cabinet Office) for the creation of a national system of affordable financial services provision.
The full article is available here.
Campaign launched to promote payroll deduction repayment of credit union loans
The Chartered Institute of Payroll Professionals (CIPP) has issued a factsheet setting out details of an agreement with outsourced payroll companies to waive any fees for the collection of credit union loan repayments from employee's salaries.
The agreement is hoped to be a key part of a campaign to increase the use of payroll deductions as a means of repaying credit union loans, and the factsheet, which is available to all employers whether they have outsourced their payroll services or not, provides further details of the benefit of putting in place payroll deduction schemes in partnership with credit unions as a cost effective means of providing employees with an alternative to high cost payday loans.
CIPP is also planning a number of free webinars to promote the credit union payroll deduction scheme. For further details please contact Ben Murray at email@example.com
StepChange report highlights 15 million are living 'life on the edge'
Life on the Edge finds that 15 million households are so stretched they've already fallen behind on bills and are using credit to keep up with essentials. Without sufficient savings or safety nets, 'distress borrowing' to tide over hard times is making bad situations even worse, limiting people's options further, straining mental wellbeing and family life, and reducing capacity to work.
The report sets out a direction of travel for policy-makers and firms to take if they're to offer a better promise to people who are doing their best but still struggling.
- A more comprehensive and responsive safety net, made possible by more help from creditors and essential service providers that families pay bills to every month - such as “breathing space” and payment flexibility when they fall on times;
- Policy nudges to grow the number of employers paying a living wage, tackle high living costs, develop more affordable credit, and make small-scale everyday savings the default option for low and middle income families;
- A national debt strategy, led by a Cabinet Minister, to bring about the necessary response from both public and private sectors and ensure that free debt advice extends to all who need it.
The report is available here.
Millions of working families in the UK could not pay their rent or mortgage for more than a month if they lost their job
Shelter has released a report based on a survey of working adults which indicates that one third of families would not be able to make their next rent or mortgage payment if they were to lose their job this month. Commenting on the findings, Shelter's Chief Executive, Campbell Robb, said: "No matter how hard ordinary families work, in today's 'knife-edge nation' a drop in income can all too quickly put their home at serious risk. If you lose your job finding another one is hard enough, but without a stable place to live it's almost impossible. The government must make sure the safety net is strong enough to stop families falling through the gaps, and going through the nightmare of losing their homes".
See here for further details.
Bedroom Tax' and benefit sanctions lead to a surge in repossessions
The Guardian reports that changes in state benefits, including the introduction of the bedroom tax and tougher sanctions on jobseekers, have helped drive the number of tenants facing the threat of eviction to its highest level in more than a decade.
There were over 47,000 landlord claims for repossession in England and Wales between January and March this year, with the 'vast majority' of these made by social landlords. Repossession claims by social landlords are up 13 per cent on the same period last year, although claims by private landlords also rose by 11 per cent.
FCA publishes new research on problems with overdrafts
The FCA has published research into problems in the overdraft market, which is worth an estimated £8 billion per year. The research shows:
- Many people don't realise how much overdrafts can cost and are confused by unauthorised overdrafts;
- Consumers don't often see authorised overdrafts as borrowing and quickly become accustomed to using them, sometimes viewing them as an extension of their income;
- Repayments are often driven by income coming in rather than as scheduled payments to clear an outstanding balance;
- There may be incentives for firms to raise revenue by increasing overdraft limits.
To help reduce costs for borrowers, the FCA will investigate how providers set and monitor overdraft limits and their governance and strategies for doing so by autumn 2014, and as part of that will consider making some additional rules for overdraft providers.
Further details are available here.
What is driving the use of foodbanks?
Citizens Advice Scotland has issued a new briefing paper setting out the reasons why its clients have increasingly been turning to foodbanks. Statistics from the service show that in January to March 2014, bureaux recorded 1 food bank issue for every 50 clients that sought advice.
Case evidence shows that a range of issues in the benefits system, including payment delays, sanctions and benefit reassessments, play a role in causing clients to require a food parcel. The briefing outlines the experiences of clients who have needed a food parcel after a problem with the benefits system. Further information is available here.
New 'Young People and Money Tool Kit'
A new online toolkit to support vulnerable young people to better manage their money is being provided by the Money Advice Service. The tool kit, which has been developed in association with youth workers, aims to help third parties to support young people to make more informed choices about their money, and become more in control of their finances to enable them to have the lifestyles they want. It provides information, tools and activities for agencies to deliver engaging and fun financial capability activities and sessions, and is based on recognised Youth Work practice and principles.
The Tool Kit be downloaded here.
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