The banks are rightly facing some tough questions about why they are charging more than 5% for mortgages when interest rates are at a record low of just 0.5%. But what about the loans taken out by the poorest tenants at rates of more than 500%?
A call from Barnardo’s yesterday to call for an OFT investigation into high-interest lenders coincided with the interim results of one of the biggest, Provident Financial. The company reported a 5.3% increase in customers to 2.1m and a 3.5% increase in profits to £53.1m.
That’s pretty impressive in a recession and little wonder at the rates it charges. Examples from the Barnardo’s report include a £500 loan over 31 weeks with a total amount payable of £775% - an APR of 365.1% - and a £500 loan over 23 weeks that turned into £747.50 at an APR of 545.2%.
In fairness to Provident, it’s not the only high-interest lender, just the best known, and the rates charged for credit by many high street retailers are equally extortionate. The case for stronger regulation of their business practices seems unanswerable but there is also a deeper issue about why people are forced to use them in the first place.
Many of the more progressive social landlords are tackling the problem by setting up credit unions and other financial inclusion initiatives. But the the same major banks - many of them state-owned that were called into the Treasury this week for questioning about their lending to homeowners and small businesses also deserve some scrutiny for their attitude to low-income households.
But what about the banks? If the major high street banks - many of them state-owned - deserved to be called into the Treasury this week to be criticised about their lending to homeowners and small businesses, what about their attitude to low-income households?
Despite the government’s best efforts on basic bank accounts, there are still 1.9m people without them in Britain and mounting evidence that the mainstream banks have used red tape to obstruct access and leave them little alternative to those 500% loans.
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