How public bodies encourage debt

Poverty Some coins
ViewsJanuary 29th, 2014

Yesterday’s launch of Community Housing Cymru’s ‘Don’t get bitten‘ by loan sharks campaign urges tenants not to turn to illegal lenders or high-interest credit.  The number of illegal lenders in Wales is on the rise – indeed as the launch took place officers of the Wales Illegal Money Lending Unit were at a nearby police station with suspects.  And last week’s report from Step Change highlighted the massive growth in the number of people taking pay-day loans and in the size of loan.

But simply telling people not to borrow isn’t much help.

People borrow from illegal or high-interest lenders because they are desperate – they need money for food, to pay a utility bill or for their rent, not for a luxury they don’t want to wait for.  And some of that desperation, as Sian Williams, Head of Financial Inclusion at Toynbee Hall, pointed out, is caused by public bodies themselves.

Public bodies can drive people into debt.

The decisions of organisations from housing associations to local authorities to public transport operators about how much people have to pay, by when and by what means make a crucial difference to whether people on low incomes can manage to pay or whether they go into debt. 

Sian gave the example of Transport for London, which is introducing cashless payments for bus journeys. Instead being able to pay for a single ticket, people on low incomes will have to put credit on an Oyster card.  It’s cheaper, says TfL, but if you’ve only got £1.50 for the bus fare and not £10 for credit then, no, it isn’t.  

Sian challenged social landlords to look again at the time they allow for people to take up tenancies. Many landlords only give new tenants a few days to get the furniture and white goods they need to occupy their new home. Inevitably many resort to the likes of Brighthouse, where goods can cost more the twice the going rate, or to illegal or high-interest lenders in order to get a bed, sofa and cooker rather than shop around recycled furniture outlets or family and friends.  

Local authorities are already increasing charges as part of their cost-cutting plans.Not only that, but many of them are asking for people to pay relatively large sums, up-front.  

Take the example of Merthyr Tydfil Council.

Last September the Council decided that children who used school buses but lived less than two miles from school would have to pay 60p a day. But instead of paying their fare daily, as now, parents were asked to pay £39.50 a term per child for a bus pass.  People with two children received a bill for nearly £80 out of the blue.  Following protest, parents were given two months to find the money (due just before Christmas…) but the requirement to pay a lump sum has not changed.  £80 is just the sort of sum that Wonga and its ilk like to lend …

The challenge to public bodies is, then, not to make things worse:

  • Don’t ask for for up-front payment – pay-as-you-go is easier.
  • Don’t insist on direct debit or standing orders – accept cash.
  • Don’t ask for payment immediately – give people time to pay.

It seems utterly crazy that one part of the Welsh public sector is supporting credit unions, supporting advice services and promoting financial inclusion at the same time other parts of the public sector are driving people into debt in the first place.

So, as well as campaigning against usury, how about a campaign for fair payment. How many of our public bodies would sign that?

Victoria Winckler is Director of the Bevan Foundation

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