Caught in the debt trap

In a small community of 180 households on the Meadow Well housing estate in Newcastle there is more than £10,000 being paid to doorstep lenders each week.

That works out at £500,000 per year.

And with the average interest charged at 100%, half of that amount is spent on paying off the interest alone.

The Cedarwood Trust which carried out the survey in June 2002 has calculated that a staggering £2.7m in interest could be being paid each year by the 2,000 households in Meadow Well.

Riots 12 years ago

Regeneration

The Meadow Well estate has undergone a makeover since it was hit by riots back in 1991.

But poverty is still widespread in the area.

The average family income is £200 per week, and many of the estate's residents depend on loans to survive.

Kate and Shaun have a new baby.

Shaun: "It's extortionate."

They've had to borrow £100 for a new carpet for their home.

Because they have an unfortunate postcode and no credit history, they've had to go to a doorstep lender. With interest, the loan will actually cost them £160.

"It's extortionate, really. Obviously we're going to get into debt otherwise we can't survive," says Shaun Kelly.

Pressure

Elaine Wright used to collect debt on the doorstep for a well-known lender in what is known as the sub-prime lending market.

She remembers how much pressure she was under to keep people borrowing and thus in debt.

"The whole point of it was to really keep the debts high so they'd be earning interest."

Many poverty-stricken Britons depend upon these loan companies, and their dependency is arguably abused.

This is not lost on local resident and spokesperson for Ace Credit Union services, Margaret Nolan.

"You can no longer be a high risk if you've been paying these doorstep lenders week in week out, year after year, but you're still being

"It's not fair," says Margaret

charged the same interest rate. That hardly seems to be fair."

Consultation

The debate over what is fair will go on till the end of this week when the government's consultation on the sub-prime lending market will end.

It is hoped by many debt campaign groups that the ongoing "consultation on making the extortionate credit provisions within the Consumer Credit Act 1974 more effective" will see an interest rate ceiling introduced in the door-to-door market.

But one group isn't overly optimistic.

"There are significant vested interests in the credit market so we feel that there is not the political will there to introduce a cap," says Alan Thornton, debt linkworker with Church Action on Poverty.

The complex nature of the UK credit market is cited as one of the reasons such a move may be too complicated.

But on a positive note, the DTI has announced that it will fund research into whether or not an interest rate cap in the UK would be desirable.

The findings of this research will then be fed into the ongoing government review into the Consumer Credit Act.

Campaign

The Debt on your Doorstep campaign is also calling for an investigation by the Office of Fair Trading into competition in the door-to-door lending market.

With base rates at historic lows, debt campaigners want to know why the reductions are not being passed on by lenders. They feel this shows a lack of competition in the home credit market.

Will poverty be eliminated from this street?

"A cap on interest rates and an investigation into competition in the market could be a very populist move by this government, if indeed, it is serious about its commitment to eliminating child poverty," says Alan.

The review will make further consultations during the summer.

It will then be down to ministers to decide what changes are necessary.

A DTI spokesman told Working Lunch that "a combination of legislation and regulatory reform is likely".

Next week on Working Lunch we'll be taking a look at how to go about getting the law changed.

Specifically how much it costs to hire the services of a parliamentary lobbyists to change minds at Westminster.

The week after we'll be hearing from the lenders themselves about what they consider to be a fair interest rate for those with a poor credit history.