Alternatives to pay day and doorstep lending Jonathan Dixon DDP Tel:

Plan… What are pay-day and doorstep loans? Why do they matter to us and our customers? If they do matter, what can we do? Discussion

What are pay-day loans? Relatively small value Short-term – less than one month Help to ride out unexpected costs Highly accessible What’s the problem?

Huge growth in demand & supply Triggered by economic pressures Unsophisticated market Used as longer-term rollover facility and To re-finance other loans

What’s the problem? High cost (moneysupermarket.com 14/11/12) Wonga 4,214% APR QuickQuid 1,734% APR Low attention to ability to repay Aggressively marketed Here’s some statistics!

Statistics 59% have debt worries (71% London) 27% believe that their situation will worsen 29% have no savings, 20% up on January 5m considering a loan, 50% up on 2011 Association of Business Recovery Professionals

Statistics 13% have prioritised loans over essentials… …and 7% prioritise repayments over food 26% of 18-24s likely to use loan in 6 months Association of Business Recovery Professionals

What are doorstep loans? Relatively small value – up to £500 Terms up to 1 year Plus unregulated providers - loan sharks Been around for a long time

What are doorstep loans? Market leader Financial Provident – ‘The Provi’ £200 for 32 weeks at 399% APR (97% fixed) Often cash based Sold via local agents Used as longer-term rollover facility and To re-finance other loans

Overarching issues? Declining incomes for poorer groups Difficult to break the cycle on low fixed incomes Cap on benefits Universal Credit to create budgeting pressure

Alternatives? Credit Unions CDFIs

Credit Unions Regulated by the FSA Fair priced loans – no higher than 25% Based on savings and membership High brand loyalty, low defaults (c. 5%) Image and identity issues

Credit Unions May offer other benefits – payroll deductions, FSCS protection, insurance, advice and dividends Budget or Jam-Jar accounts Government (DWP) subsidy status may force re-positioning into safer markets

CDFIs Operate under Consumer Credit Act ‘Fair priced’ loans – no cap on rates Loans charged at 60% (100%+ APR) Can’t take deposits – can’t do budget accounts Only real fair-price competition to pay-day and doorstep lenders

CDFIs Can expect higher default rates – 24%? Requires sensitive, effective and commercial fund management approach Better if incorporates money advice Best when ‘joined-up’ to a credit union to encourage saving Could they generate an ROI?

Opportunities CU budget accounts to ameliorate UC risk? HAs to invest in OR launch their own CDFIs? What else?

Questions and comments?