All About Loans Weblog

The concept that traditional lending companies qualify as loan sharks is common in the financial industry, but consumers still find this hard to believe. However, when doorstep lender, Provident Personal Credit in the York area, charged an APR of 177 per cent, they arguably qualified for the undesirable label.

The company allegedly offered £45 per lead on clients that credit unions turned down, approaching these consumers by letter. These clients are typically those with insufficient income to make repayments or those with bad credit history. For many, a credit union is the cheapest option for low earners and bad debtors to get a bad credit tenant loan.
A spokesman for Provident said the letters were sent by mistake.

He said: “Most of our customers come to us through word of mouth from existing customers as our clients are generally very happy with the service.”

He claimed that the high APR is charged because agents visit customers’ homes to collect payments, and also because the company does not make charges if a person is unable to pay one week.

The practice of paying brokers a finders fee is not uncommon. However, targeting people who have been turned down by a credit union may possibly fall into the category of ‘invasion of privacy.’

Credit unions are other lenders are taking note.

Mike Horncastle, pictured, manager of the credit union said: “We are taking a principled stand on this.

“If a member can’t afford the repayments on one of our loans at 19.6 per cent APR how can they possibly afford a Provident Personal Credit loan charged at a typical 177 per cent APR?”

He said of potential defaulters: “Suddenly, people are faced with a solicitor’s letter from a doorstep lender and they have nowhere to turn to.”

Some analysts claim that, even with a high risk of bad debtors and allowance for occasional missed payments, 177% interest on a loan is unreasonable.

Reports of high interest rates from doorstep lenders in the York area have caused a stir in the financial industry. Many analysts are concerned that the company is profiting from the misery of others.

Many consumers who apply for doorstep loans do not realize they have legal rights, and this ignorance leaves them vulnerable.

Kate Hignett, Legal Aid caseworker for the Citizens Advice Bureau (CAB) said: “There are no statutory caps on the interest that a credit company can charge its customers.

“Unfortunately, it is typically people on low incomes or with a poor credit rating who tend to borrow from doorstep lenders because they cannot obtain credit from high street lenders.

“We have always advised clients when they are planning to borrow money, always to ask what the total amount will be they will have to pay back.

“We work very closely with Credit Unions and advise clients to use them where they can as they provide responsible lending at a realistic cost.”

For a loan of £300 from a lender in York who is charging 177%, consumers may eventually pay £195, ten times what the city’s credit union charges.

Lender Provident advertises on their website that a loan of £300 repaid over 55 weeks at £9 a week has a total payout of £495.

York Credit Union advertises  £300, paid back at £9 a week, would clear the loan in 36 weeks with only £19.32 in interest.

While doorstep loans are available to many people in high risk credit categories, who would not qualify for a loan from a traditional lending company, consumers are alerted to the fact that they could borrow the same amount from a credit card for less than the interest charged by the doorstep lenders.

The Economic Secretary to the Treasury, Ed Balls, and Trade and Industry Minister, Ian McCartney, pledged £1.2 million to provide enforcement teams to tackle the UK’s illegal money lending problem. This is great news for the banks and reputable loan firms.

The funding announced today allows for expansion of pilot projects. These initiatives are important to the Government’s strategy of increasing the availability of credit for those who are currently burdened with financial exclusion.

Approximately 165,000 households in the UK are forced to use illegal money lenders. Half of these victims are located in the poorest parts of the country, concentrated in deprived urban housing estates, where it is difficult to obtain a loan legally.

These teams overcome the barriers that arise from the fear and intimidation of victims, and by providing legal support for victims. The teams have already been responsible for the prosecution of several high profile loan-sharks in Birmingham and Glasgow.

Ed Balls, said:

“This important project has helped give victims in the West Midlands the confidence to come forward, an awareness of better ways to borrow and helped us to build evidence against loan sharks to bring them to justice. The money we are announcing today means that not only will the existing projects in Birmingham and Glasgow continue to serve their communities, but that this important initiative will be expanded to other parts of the country also suffering from this blight.”

The specialist teams have had considerable success in tackling illegal lending, according to the Department of Trade and Industry (DTI).