Transcript SYHA Loan Fund Options Study July 2012 Jonathan Dixon DDP
Alternatives to pay day and doorstep lending
Jonathan Dixon DDP
Tel: 07 900 900 490
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?
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?