The Real Cost of Christmas - 100,000 families crippled with £82 million loan shark debt
Up to 100,000 of the UK’s poorest families could spend 2010 crippled with an estimated combined debt of around £82 million after borrowing money from loan sharks to pay for Christmas 2009, according to a new report commissioned by Circle Anglia – one of the UK’s leading providers of affordable housing.
The Real Cost of Christmas report, which was authored by think tank the Financial Inclusion Centre, found that an estimated £29 million in illegal doorstep loans were taken out over the holiday season, making it the worst Christmas in a generation for this type of borrowing.
Circle Anglia commissioned the research to highlight the issue after noticing an increase in the number of its residents being targeted by loan sharks. Following the research, Birmingham based Mercian Housing Association, which is part of the Circle Anglia group, has launched a campaign to remind residents in financial difficultly of the services available to them as part of its extensive work to help its residents manage their finances.
Evidence shows that on average people borrowed nearly £300 from loan sharks to cover the cost of Christmas, but with exorbitant interest rates averaging a whopping 825 per cent (some rates can reach as high as 1,500 per cent), they will pay back over £800. The average loan repayment period is a year, meaning that a large number of Britain’s poorest households will still be paying off their debt in Christmas 2010.
The report also estimates that illegal loan shark activity is on the up in the UK. Over the last three years the estimated use of loan sharks increased from 165,000 to over 200,000 households per annum – a 22 per cent rise. As the recession continues to bite, loan sharks have moved in with loans from illegal doorstep lenders at Christmas time accounting for up to half of all loans borrowed from loan sharks in 2009.
Mercian Housing aims to ensure that every resident is offered access to five basic financial services; advice, banking, credit, insurance and savings. In the last year, Mercian has provided free debt advice to residents in rent arrears; helped 30 residents open a basic bank account; seen the number of residents without home contents insurance drop to 15% and provided over 3,000 residents with important information about financial services and products. In addition, over 30 frontline staff have received financial inclusion awareness training.
Mercian Housing owns ART Homes Limited (AHL), an FSA authorised, not-for-profit organisation that works in partnership with local authorities and provides regulated financial advice and affordable loans to vulnerable and low income home owners living in poor housing. AHL loans are for those who are assessed as eligible for support by local authorities and who are unable to obtain affordable finance from high street lenders. AHL has now provided over £20m in affordable loans, helping nearly 2,000 households to improve their living conditions.
James Walsh, Community Regeneration Manager at Mercian, said: “Mercian is committed to enhancing the Life Chances of residents by building sustainable communities and helping our residents become financially included. Mercian is a member of Birmingham City Council’s Financial Inclusion Partnership, which aims to tackle financial exclusion. Strong partnership working in the area has enabled the Birmingham Trading Standard’s Illegal Money Lending team to set up an emergency housing protocol with Mercian and other partner Registered Social Landlords (RSLs) to re-house victims of loan sharks. We are also a member of the government-backed ‘Now Let’s Talk Money’ campaign, which provides help and advice to people on low incomes”
Andy Doylend, Executive Director of Operations at Circle Anglia, said: “The figures from the report are very concerning and demonstrate the scale of illegal lending across the UK. We hope that by turning the spotlight on loan shark activity we can help more people to seek help and get sound financial advice. A simple step such as borrowing from a credit union or a community finance organisation instead of a loan shark could have saved the typical low income household £500 in debt repayments – more than enough to fund the whole of Christmas 2010 as well. ”
“The challenge in 2010, for all of us in the housing sector, is to make sure that we reach out to our residents to make them aware of the availability and accessibility of affordable finance and to help them manage their finances better.”
Mercian and Circle Anglia have provided some tips for people, who are struggling with debt problems:
- Budget correctly: Write down all your family’s finances – it can really help to focus the mind. Create a very simple list of incomings (e.g. wages, benefits, child support) and outgoings (e.g. food, fuel, travel) – this will enable you to identify what areas of spending you might be able to trim. Don’t fool yourself about how much you spend on things. The key is being totally honest with yourself to make it a valuable exercise. What can you cut down on or cut out altogether?
- Get free advice from experts: If you feel your debts are unmanageable and they seem to be spiraling out of control, speak with experts, who can guide and support you. Identifying and negotiating payment plans is something that organisations like the Citizen’s Advice Bureau, the National Debtline (0808 808 4000) and Consumer Credit Counselling Service (0800 138 1111) can help with.
- Never borrow from loan sharks: Loan sharks are illegal and charge exorbitant interest rates at an average of 825 per cent APR. There are other ways you can access fair and affordable credit – find out about third sector credit providers such as credit unions that are in your local area and get in contact with them to discuss ways of accessing fair and affordable finance.
- Shop the shark: If you have borrowed money from a loan shark you are under no legal obligation to repay the debt. A debt 'owed' to an illegal lender is not legally enforceable, which is why loan sharks often resort to violence and intimidation. If you think you’ve been the victim of a loan shark or that there is one operating in your community contact the Trading Standards Illegal Money Lending team on the 24/7 confidential hotline 0300 555 2222 or text ‘loan shark’ and your message to 60003. They will help you deal with your situation and the loan shark. All reports are treated in confidence and the safety of the person calling is given the highest priority.
- Be realistic: Set yourself a realistic time-frame to get out of debt. Don’t get frustrated that it will probably take more than a few weeks. If you’re serious about addressing your debt problems, you need to take a long-term view.
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Press contacts:
Natasha Spong: 0207 447 3024, 07527 020 817, natasha.spong@circleanglia.org
Vicky Marshall: 0121 322 7391, vmarshall@mercian.org.uk