Action needed to stamp out loan sharks

Jul 27 2009 By Kevin Rowan, The Journal

MOST of the focus on the banking and finance sector has been on the high-end investment side.

The very strong case for much clearer and more effective regulation appears to be well made, but a solution to how this is achieved and what measures might be introduced still seems some way off.

Meanwhile, business investment models remain bereft of essential financial support, compounding the recession and stifling the capacity of the regional economy to recover and move out of this downturn.

At the other end of the financial spectrum a base of extensive and pervasive poverty couples with a steady and growing number of unemployed workers to create a market for the financial vultures who seek to prey on the most vulnerable people in society. In the last week I have seen two separate promotional flyers offering flexible, unsecured loans.

These flyers are being distributed in growing numbers around the less affluent communities and housing estates. The loans they offer start as low as £50. The suppliers of these loans see themselves as providing a "service" to communities, enabling customers to have the opportunity to buy anything from the latest plasma screen TV, a family holiday or school uniform.

This "service", however, comes with a hefty price tag. The flyers I have seen offer interest rates of over 250% apr, although I have heard of much higher. This isn’t a service, it is crass exploitation and abuse of vulnerable individuals and their families. The £20 school uniform ends up costing more.

The vast majority of debate has been around financial regulation of the banks and their role in helping to stimulate the economy - and that is a critically important debate. There is also, however, a debate about how the High Street banks treat the very low paid and insecure workers. Many of these individuals find it very hard, if not impossible, to open bank accounts, greatly increasing their vulnerability to loan sharks.

Credit unions do offer a practicable and ethical alternative, where they exist, but they remain too few and thin on the ground. There is an additional problem for workers with very low incomes; I heard of a working adult in average, rented accommodation with a disposable income of 50p per week. This is clearly a desperate situation at all levels, and it makes saving even two or three pounds a week with a credit union simply impossible.

There are important schemes in the region sponsored by the Financial Services Authority and the Department of Work and Pensions to help people to understand financial issues and to receive financial and debt management guidance. But, the only effective way to stop this exploitation is by taking more effective action to ensure banks are much fairer to the poorest in our communities and by much stronger, more robust and effective regulation of the loan sharks to outlaw this outrageous exploitation and tough prosecution of those who exploit the most vulnerable.

Kevin Rowan, regional secretary, Northern TUC