545% loan companies 'preying on the poor'
Loan companies targeting low income families with high interest loans are preying on the poor, a leading charity has warned.
Children's charity Barnardo's is demanding an investigation into high-interest lenders as Provident Financial reported yesterday a five per cent rise in people turning to its loans in the recession and a 3.5 per cent rise in profits.
Barnardo's has uncovered examples of Provident loans reaching 545.2 per cent APR - on a £500 loan over 23 weeks seeing repayments of £775.
Meanwhile a Hotpoint washing machine costing £337 on the high street costs £1137 over three years via catalogues from Bridgend-based Buy As You View.
The charity claims extortionate interest rates are typical of many doorstep lenders which will continue to flourish unless the government steps in.
Barnardo's chief executive Martin Narey said: "Many parents turn to high interest money lenders in desperation.
"Parents can't afford the basic necessities for their children, so are forced to borrow"
He explained many people are excluded from high street bank lending and reasonable overdraft and loan rates, so they are left with no choice.
"And this need has risen as the poorest struggle through the worst economic crisis this country has seen in more than a generation," Mr Narey said.
Provident Financial has defended itself saying the use of annual rates misrepresents its service of short-term low-values.
"With the APRs there is quite a big back story," a Provident spokesperson said.
She explained the use of agents from the community going to people's homes was more costly and its loans had the guarantee of repayments not to rise if payments are missed.
She added with agents paid on the amounts people repaid and not loans sold it was not in their interest, or the interest of the firm, to sell loans to people that could not afford them.
Barnardo's is now calling on the government to push high street banks into universal banking, so all people have the right to a basic bank account.
Without a basic bank account many people are excluded from direct debit discounts on energy bills, short-term overdrafts, bank loans and high street interest-free purchase schemes.
The charity is also calling for more help to encouraging savings among low income families.
One method could be for a part of benefits to go directly into a savings scheme, such as the government's Savings Gateway, which will offer to match savers money pound for pound.
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