Lewisham councillor Mike Harris writes about how tough action needs to be taken against legal loan sharks - and what the alternative is to pay day loan firms.
I once borrowed from a legal loan shark. I took out a loan of £100 and a week later, for the privilege, I had to repay £120.
At the time, I was between jobs and the Nationwide had helpfully slashed my overdraft.
I was lucky enough to escape this debt trap and pay back my debt – but for families across Lewisham using a loan shark is an everyday reality. In fact, Lewisham has London’s worst pay day loan problem – according to the Step Change consumer credit counselling service.
If you walk down Lewisham High Street, these pay day firms offer loans at rates up to 4,000 per cent. That’s a rate over 200 times even what an average credit card charges. Rip-off Britain is alive and well.
Yet, it’s clear that people don’t realise how expensive these loans really are. Normally when there’s a lot of competition, the price of a product falls – but even as new shops have opened up in Lewisham, the interest rate charged hasn’t fallen and may have gone up. The market just isn’t working.
In Lewisham, the average person who uses these short-term loans owes £530 and has two separate loans. We’ve got to help these people out of their debts.
At the end of September, Lewisham’s councillors debated legal loan sharks. We heard evidence that made my blood boil. I told our meeting that one loan company had sent an employee out in costume to promote their loans during the Olympic torch relay through Lewisham; another councillor said employees of one firm had given out leaflets outside the job centre queue in Catford.
Unanimously, with cross-party support every councillor backed Labour’s motion to try and tackle these parasites.
There’s a lot we would like to do but sadly the government won’t let us. We want the ability to stop new loan shops opening in the same way we can stop too many late night bars from congregating in the same street, and we would like the government to set a maximum cap on the interest that can be charged.
But there’s a lot we can do. The council supports Lewisham Plus Credit Union, an alternative to the big banks that can provide low cost loans to people. The cost of a loan with the credit union could be up to 20 times less than with one of the legal loan sharks.
You can help too. Instead of the miserly rates offered by the high street banks, you can save with the credit union so they can lend more to families at a reasonable rate – you could even earn a better rate of interest on your savings!
Local people need to pass this message on to their family, friends and neighbours, as credit unions don’t have big advertising budgets but rely on word of mouth recommendation.
I’m also calling for Lewisham’s residents to sign a national petition calling on the government to give councils the powers to hold back the endless spread of legal loan sharks.
The recession has made this problem worse, with more people relying on credit to make ends meet. But it’s a false economy as the unregulated wild west of legal loan sharks is shackling the UK’s poorest borrowers with the highest price for credit in Europe.
Yet, this industry doesn’t need to exist - for most people their local credit union or building society can lend them money cheaper. Together we can help people out of their debt traps, but as a community we need to take action, and now.
Mike Harris is one of the Labour councillors for Lewisham Central. You can follow him on Twitter: @mjrharris
Do you agree with Cllr Harris's opinions? Do you sympathise with people who have to resort to using pay day loan firms and do you feel tough action needs to be taken to prevent people being taken advantage of? Add your comments below.