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Last Updated: Tuesday, 13 May, 2003, 16:46 GMT 17:46 UK
The high cost of debt

By Virginia Eastman

Debt is a way of life for Cathy Haines.

She owes money to seven different groups - six of them are companies that charge high rates of interest due to her poor credit record.

Her story isn't uncommon - 20% of the population have no access to mainstream credit.

They charge rates between 40% and 60% on the goods that she's bought.

Most of these are electrical items but there's also a new stair carpet and, of course, Christmas presents from last year.

Doorstep collection

"Without debt, I could not live," says Cathy.

Without debt, I could not live.
Cathy Haines
She owes slightly more than a third of her annual income to debt repayment agencies and expects that the situation won't change.

Companies like Shopacheck, Evans, Greenwoods and their parent company, the market leader Provident Financial, say that the cost of doorstep collection is one of the reasons people like Cathy pay over the odds.

They also stress that if she misses a payment the cost of the loan doesn't go up.

Although this is true for those companies, there are many lenders who do compound the interest.

And when debtors fall behind with their payments, the going can get very rough.

Lesson

Graham Kemp borrowed money for a washing machine.

One day a man turned up on his doorstep and told him: "If you don't pay the money back next week we're going to break your legs."

Graham paid.

"I learned my lesson from that, but I've heard some horrendous stories from people who have had problems with loans," he says.

"There were guys waiting outside the post office for people, especially women with young children, coming out with their benefit and having it snatched off them."

This loan industry is worth about 30bn a year.

It's not regulated and it is perfectly legal to charge rates of more than 200%.

In Germany, Austria, Greece, Holland and France the rate of interest that can be charged on the open market is capped by the government.

Ceiling

Lenders might argue that if a ceiling were imposed on the rate they can charge, they wouldn't make enough to survive.

But the fact that much of Western Europe makes it work would seem to indicate it could work here.

The credit union movement is a possible third way.

Small groups are growing on a regional basis, like the Bulwell Credit Union, and are trying to undercut the loan companies for "reformed debtors".

Seamus Grant, Bulwell's business development manager, says: "It's getting out of control. Rates above 80% are common in our area, so we're offering cut price loans to people who have proved they can save for three months."

Lip service

John Battle, MP for Leeds West, is also adding his name to the list of people who want to see the government do more than pay lip service.

"I want a capping of interest rates at about 30%," he says.

"When I asked a Parliamentary question there were over 200,000 licensed lenders and some were charging interest at over 800%."

Mr Battle points out that there used to be a limit under the Consumer Credit Act until it was taken off the statute books.

"We need alternatives," he argues. "Let's look at the state social fund to help those who have immediate needs and need money quickly.

"And we need a lot of support from credit unions to get them off the ground in our neighbourhoods."

The government is holding a consultation period on "extortionate interest rates".

The deadline for submissions is 6 June. During this time it wants to hear from anyone in the community who believes it should intervene and cap rates in the lower end of the market.



WATCH AND LISTEN
The BBC's Virginia Eastman
"Cathy has no access to mainstream credit"


MP John Battle
"People are desperate and don't read the small print"



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