Breaking the loan shark spiral

Credit unions have been set up to help clear debts

Debt advice workers on a Welsh estate where every other family owes money to doorstep lenders say they are desperate to see the widening of a scheme which could help.

Wales has one of the highest rates of borrowing in the UK and in Caernarfon, north Wales, advice workers are seeing an explosion of activity by so-called loan sharks.

As the BBC across the UK looks at spending and debt in a special Hey Big Spender day, BBC News Online looks at debt problems on one estate in the town.

On the Maes Barcer estate every other family owes money to a loan shark.

Borrowers, often unemployed and on state benefits, seek them out when they cannot get money elsewhere, but the penalty is that lenders often pay enormous rates of interest.

One company which operates on the estate and around Wales - the Provident - admits that for every £100 borrowed, there is an annual interest rate of 177%.

But the firm says their rates are justified because they lend to people who have been refused credit elsewhere and because of the cost of collecting payments.

Eiriona Rees Hughes managed to escape the grip of such a company after five years of trying.

'Paying out'

Mrs Hughes borrowed from a lender after getting into debt after she married and said the costs "spiralled into a snowball".

She added: "It was only about £400 but with interest rates it was a lot of paying out every week."

Mrs Hughes, who works in a nursery school and helps out at a youth club, says she has now cleared her debts with the help of a credit union.

"If I wanted a loan for any reason I could (get one) because the interest rates are not so high," she said.

"And they tell you if you can afford it or not.

"They don't pressure you into taking things you can't afford."

Helen Davies, who runs the Maes Barcer estate's community centre, believes up to 60% of people there borrow from door-step lenders at interest rates of up to 10 times the average bank loan.

"It's a big problem for people in the area," she said.

Low take-up

"But it's the way people have learned to live round here."

A new credit union, Llechen, offering low interest rates, has been operating on the estate for 18 months.

So, far, take-up has been low, mainly because members have to save for eight weeks before they can borrow.

Trustee Manon Davies is trying to get more people to turn away from the lending from loan sharks and join the credit union.

She says a £100 loan from the credit union would cost £3 interest over a 20-week period, whereas a loan from the Provident firm would cost £47 in interest.

The credit union is also lobbying for extra funds to try to redeem existing high-interest loans and break the cycle of borrowing

The debt redemption scheme, which operates in former coalfield areas, works by underwriting what would have been considered risky loans.

But the Wales Co-operative Centre, which runs the debt redemption scheme in south Wales, says it would have to link up with other organisations - including banks - to offer the scheme nationwide.

Hey Big Spender is broadcast on BBC One Wales at 2100GMT on Wednesday.