Durham research finds loan companies "preying on poor"

 
Eleanor Eamens Eleanor Eamens took out a £100 doorstep loan but ended up owing £4,000

Related Stories

Eleanor Eamens started off borrowing £100 from a doorstep lender to help with the cost of Christmas.

Soon she ended up with six separate loans, owing the lender £4,000.

The mum from Belford in Northumberland found the £50-a-week payments impossible on her income, forcing her to choose between servicing the debt and feeding her five children.

But even towards the end when she was missing payments, the company continued to offer her loans.

She said: "I take responsibility for what I did. Nobody forced me to borrow the money, but when you are on a small income it's so tempting.

"They did not ever look if I had other debts or whether I could afford it on my income. They simply didn't have a clue."

Low income

Start Quote

Professor Sarah Banks

It was quick and convenient to get the loans, but very soon people were finding themselves saddled with large debts”

End Quote Prof Sarah Banks Durham University

And a new study carried out in the North East has found that Eleanor Eamens' experience was all too common of low income households.

Durham University worked with 24 families in Middlesbrough and Stockton.

Many didn't have a bank account, and the ones that did were only allowed basic services with no access to an overdraft or credit card.

The most any of the families had in savings was £4, yet their debts ranged from £340 to £10,000.

Many had multiple loans with payday and doorstep lenders, at annual interest rates of up to 4,000% even though their incomes were small.

Professor Sarah Banks, who led the study, says this had a profound and negative impact on their lives.

She said: "It was quick and convenient to get the loans, but very soon people were finding themselves saddled with large debts.

"Many were desperate, some had moved home, others had gone off incognito to try and get away from the debt and many had mental health problems which were quite severe."

Huge rates

The researchers believe these families were preyed upon by lenders even though they clearly couldn't afford the debt.

Professor Banks believes there needs to be a cap on the amount loaned to individuals and greater checks on their ability to pay.

She said: "The companies were purely interested in getting more customers and not in whether people could pay it back. They charge huge rates and built into those rates is the assumption that they will default.

Woman stands by poster advertising loans High cost credit companies often provide credit for people turned away by banks

"We want all these high cost credit companies to carry out affordability checks. If people can't afford them they shouldn't really be offered the loans."

And the pressure does seem to be ramping up on high cost credit companies.

The government is planning tighter regulation of the industry from next April, but Labour has gone a step further by backing some form of cap, and promising a levy on the firms.

That money will then be used to help develop community credit unions to provide low cost alternatives.

Well-supervised

But some believe the idea is unworkable. Phil Hall from the ifs University College, which specialises in financial education, says credit unions will never be a substitute because they require people to save before they can lend

He also believes the high cost credit industry is already well-supervised.

He said: "The fixation with huge APR rates for payday lenders is very misleading because APRs are annual, payday loans are not. Often it is cheaper to borrow from a payday lender than to dip into an unauthorised overdraft or to take out a lengthy bank loan but these basic facts appears to be lost on policymakers.

"The government should be cracking down on illegal lending and loan sharks rather than directing misguided attention to what is already a well regulated market."

And those who work in the industry believe they provide a vital service.

Julio Martino runs a local payday loan shop in Newcastle. He says he does check people's ability to pay and charges realistic interest rates.

Start Quote

Julio Martino

Companies like mine are willing to take a slightly greater risk to lend to these people who do need credit”

End Quote Julio Martino The Mint, Newcastle

He said: "I think it is important businesses do not charge ridiculous interest rates but we do have to charge a rate that allows us to make money. We are not a bank, or building society or a huge financial organisation so we cannot charge APRs similar to credit cards.

"We are essentially lending to people who cannot get credit from banks, and companies like mine are willing to take a slightly greater risk to lend to these people who do need credit."

Credit unions

But the researchers at Durham University believe people can be given help to avoid unmanageable debt.

They worked with community organisation Thrive Teesside to provide mentors for low income families to guide them.

That helped many, and some now do use credit unions.

Eleanor Eamens has also drawn a line under her loans. She'll be debt-free by January and has begun saving with her local credit union.

She says she'll never go back to high cost credit.

But with the high cost credit industry worth many hundreds of millions of pounds, will it ever be possible - or even desirable - to wean people off the payday and doorstep lender?

 
Richard Moss, Political editor, North East & Cumbria Article written by Richard Moss Richard Moss Political editor, North East & Cumbria

Osborne's northern powerhouse pledge

The Chancellor wants to create a northern powerhouse through railways, science and mayors but can he deliver?

Read full article

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 12.

    Really? who would loan companies prey on elsewise? Rich people generally dont need loans.

  • rate this
    0

    Comment number 11.

    Couple of things;

    1. #10. Bad crack to make comments on your own story Sarah.
    Shows you bother. You should be above that.

    2. Richard. You need to get down to Redcar and find out what is happening to SSI. All the steel companies are feeling he pinch. How long can SSI brazen it out without begging state aid? Which presumably they will not get.
    Closure looms. Again.

    Who will get the blame?

  • rate this
    -1

    Comment number 10.

    Radio 4, Sue Lewis, Financial Services Consumer Panel said high charges on bank overdrafts/credit cards a bigger problem than payday loans. Our research found many low income households don't have bank accounts (or only basic bank accounts) or credit cards. They do use high cost credit from doorstep lenders, rent-to-own companies, catalogues and payday loan companies. For them PDL are problem.

  • rate this
    0

    Comment number 9.

    Billywizz ? Not the brightest I agree - but even uneducated fools can make stupid ill thought remarks. Try a bit of life, experience & researching before making such remarks about something you know nothing about.

  • rate this
    0

    Comment number 8.

    What a huge study to draw any conclusions from - 24 families!

    You cannot draw any meaningful conclusions from such a small study.

    It takes both a lender and a borrower to make a loan. Lenders should check to ensure repayments are affordable but that is it (and most do).

  • rate this
    -1

    Comment number 7.

    The difference between these leeches and the likes of JP Morgan

    http://www.bbc.co.uk/news/business-24599345

    is that JP Morgan have banking licences and are feted by politicians whilst this lot directly rip us off.

    The result is the same: Misery for some and wealth for others.

    Who gets to decide which side we are on?

  • rate this
    -1

    Comment number 6.

    Those who profit most from recession, poverty and desperation are bankers, money lenders and pawnbrokers. A situation advantageous to extremist, finger pointing ideologies.....1930's Germany....It could'nt happen here, could it???????????

  • rate this
    0

    Comment number 5.

    I'm poor because I'm studying for a Master's degree - not very bright Billywiz? Students studying for a Bachelor degree at university are poor because they're not very bright? People who believe there is more to life than material consumerism not very bright? You need to check your "facts".

  • rate this
    +1

    Comment number 4.

    Number 2....."poor people often aren't very bright". Really? Would you care to rethink that comment?

  • rate this
    +1

    Comment number 3.

    The companies didn't check if she was able to pay. I'm entirely sympathetic with people who take loans because they have no other source of income but please, don't blame the vultures for being vultures. Society must do a better job of looking after the needy so these companies are driven out of business but until we reform they will carry on and we must all take responsibility for our actions.

  • rate this
    -1

    Comment number 2.

    Unfortunately it is a fact of life that poor people very often aren't very bright either, so they need to be protected from predators like payday loan companies and if that means capping interest rates that these predators can charge, so be it. Cameron, stop dithering, get something done about it now.

  • rate this
    0

    Comment number 1.

    Payday loan companies are nothing but vultures

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.