Housing Rights Service welcomes changes to payday loans

Earlier this week, the Financial Conduct Authority (FCA) announced a number of new measures which aim to minimise the impact of payday loan charges on borrowers.

From 2nd January 2015:

• Interest and fees on high-cost short-term credit loans will be capped at 0.8% per day.
• A fixed default fee of £15 will be applied to borrowers who do not make repayments on time.
• There will be a total cost cap of 100% which means that borrowers will never repay more than twice what they borrowed.

All of these measures are being introduced to lower the costs of borrowing from payday lenders. The FCA estimate that following these changes 7% of current borrowers, (70,000 people),  may no longer have access to payday loans due to the new stricter rules; 2% of whom may resort to seeking a loan from an illegal loan shark.

Affordable credit

Housing Rights Service welcomes this development, but we are concerned about FCA estimates that 2% of the population may continue to seek financial assistance from loan sharks. Many people on low incomes will have to continue to borrow from payday lenders in the absence of a more affordable alternative. We believe that more work needs to be done to make affordable credit facilities available to those who cannot access traditional high street lending.

Role of credit unions in Northern Ireland

In 2013, together with Liverpool John Moores University, Housing Rights Service launched ‘Towards Financial Inclusion’ which looked at the potential for expanding the credit union movement as one way of offering access to low cost financial services for low-income households in Northern Ireland.

There is a strong commitment from Northern Ireland credit unions towards their local communities. They serve 34% of the population in Northern Ireland, compared with 2% in Great Britain. Credit unions have a history of serving low-income communities and those who are unable to access high street loans. However, many people in Northern Ireland are still out of reach of a credit union e.g. only 4% of Housing Executive tenants are members of a credit union. 

We would like to see the expansion of credit unions as a credible borrowing option for more low income and financially excluded households.

Developing a people’s bank

We would also like to see the idea of a ‘People’s Bank’ revisited. In 2013, the then Minister for Social Development, Nelson McCausland, spoke of his hope to create a People’s Bank to challenge the hold of loan sharks and payday companies.  At that time the Minister stated, "We have to do something which tackles the issue of affordable credit being inaccessible, in particular for families for whom the traditional banks have nothing to offer. That is the only way we will stop paramilitary organisations and pay day loan companies preying on these families."

We would encourage the current Minister, Mervyn Storey, to explore this option as a way of making credit more affordable for financially restricted households.