A LOCAL network of credit union access points may be desirable, but it will come too late for many Borderers already ensnared in the vicious circle of paying the exorbitant compound interest rates levied by so-called “pay day” loan companies.
That is the view of Pat Buckley, manager of the Roxburgh Citizens’ Advice Bureau which has offices in Hawick and Kelso.
Mrs Buckley admitted the number of clients coming to her organisation for debt counselling had risen fourfold over the last five years and that this trend had been accelerated by the phenomenon of companies offering short-term loans which carry annual percentage rates (APRs) of up to 5,000 per cent.
And she welcomed the decision of Scottish Borders Council last week to unanimously support Councillor David Raw, a former executive member for social work, in his call to the Scottish and Westminster governments to enact legislation against the short-term lenders. Specifically, Lib Dem Mr Raw wanted his colleagues to deplore the “extraordinary high level of APR” and demanded that the top half of the ubiquitous television and online advertisements should display, in bold type, the APR interest and the penalties for not repaying on time.
He said pay day loans had grown in recent years “not like mushrooms, but more like poisonous toadstools”.
Mr Raw told the meeting: “These companies have propelled hundreds of poor people into unsustainable debt ... and they are here in our midst in the Borders. Their growth has been hastened by higher rates of unemployment and the current economic situation.
“Via the internet, they reach out to the most remote corners of our region. A Google search of pay day loans has links to every town in the Borders and I counted over a dozen links to ‘Galashiels: Pay Day Loans’ in the search engine.
“One [Wonga.com] is even emblazoned on the shirts of our nearest Scottish Premier League team [Heart of Midlothian].
“Companies use the soft sell of ‘It’s quick and it’s easy’ and we are shown pictures of young, attractive, smiling people in their advertisements.
“What is hidden away in the barrage of daytime television ads is the tiny strapline with the APR interest rate, but there is nothing tiny about the rates. Many of the firms concerned are based abroad and, in effect, they are making personal debt in the UK bigger at a cost of exporting massive profits, measured in billions, out of the country. It is truly an Alice in Wonderland form of economics.
“On a human scale, there are numerous stories in the national press about debt causing depression, marriage break-up and even suicide.”
Mr Raw said poor people had been coming to the CABx in the Borders with “tales of woe”, after falling behind with a few hundred pounds worth of debt and ending up in hock for 10 times that amount as a result of the high APR and late payment penalties.
“This council’s own welfare benefit advice team in Earlston reports a doubling of the number of people needing debt advice since Christmas and it is forecast these figures will accelerate even more when the Welfare Reform Bill, which it is estimated will take around £10million out of overall benefits payments, is enacted over the next couple of years.”
Mr Raw admitted his motion calling for tighter controls and guidelines on advertising was “limited”.
“I personally would go further and call for a cap on interest rates as practised in Australia and 15 states in the USA, more stringent rules on television advertising and for local authorities like SBC to be able to refuse planning permission for pay day loan shops,” he added.
Mrs Buckley said she agreed with Mr Raw’s appraisal and called his successful motion “a step in the right direction”.
“The problem is that it is too late for those people already caught up in the pay day loan trap and there is no doubt legislation, coupled with alternative lending arrangements, is urgently required,” she told us.
“It is ludicrous, for example, that people can secure one of these loans by text with, apparently, no questions asked as long as they are in employment. The trouble is that people’s circumstances can change through cutbacks in their hours or marriage break-up and the spiral of indebtedness begins.”
Mrs Buckley said the CAB’s concerns over pay day loans had been expressed at a meeting with local MP and Scottish Secretary Michael Moore, Councillor Raw and Marlene Shiels, chief operating officer of the Edinburgh-based Capital Credit Union (CCU) which is licensed to cover the Borders and has recently launched its Swift500 accessible loan with an APR rate of just 26 per cent.
“The view of the CAB expressed at that meeting is that if more CCU access points, through registered social landlords and council contact centres, could be set up in the Borders, it would sustantially ease financial problems for our clients. Our advice to anyone thinking of taking a pay day loan is definitely to think long and hard about the implications.
“Our advisers at the CAB are happy to proactively help our clients develop budgeting and financial skills although, again, that is too late for so many people already ensnared.”
Mr Moore admitted there was “huge concern” about pay day lenders in the Borders where lack of affordable credit was an important issue for many local people. He said the problem was being targeted by both the Office of Fair Trading and the UK Government which has been consulting on the future of consumer credit.
“Another way of tackling the activity of loan sharks is though the excellent work of credit unions and I have met with the local CAB and others to discuss how we can promote the services they provide,” said Mr Moore.
“I personally will continue my work with the CAB and other local groups to ensure Borderers benefit from the services provided by credit unions.”