FOLLOWING the credit crisis and the furore about subprime lending, a bit of historical nastiness has once again reared its head.
For many years, low interest rates and the availability of good credit has seen the level of doorstep-lending in Scotland fall away.
With borrowing being scrutinised more and more, however, high interest rates and short-term loans have made
a come back.
The rot began with the Farepak disaster as people began to look for short- term loans to enable them to purchase Christmas presents and the current financial situation has compounded the issue.
Annual percentage rates of 180 per cent are common, with repayments being collected by agents calling at the homes of creditors. No matter what companies behind this sort of lending say, these levels of interest punish those who are least likely to be able to cope.
The market in the UK is now worth £3 billion and is controlled by just four companies, which hold 79 per cent of the business. One of these firms is Provident Financial, which recently said that market conditions had been very favourable as its customer base increased by 3.8 per cent in November alone.
It is this type of irresponsible lending that the government needs to look at. Numerous charities have called for these exorbitant interest rates to be capped by the government. With an industry that simply won't regulate itself, it is time for government to do something.
Anyone who is looking for credit and feels they have no-where to turn should take a look around – often the surroundings can be better than first feared. Dunfermline Building Society, for example, has savings and loan schemes in place with 18 housing associations across Scotland. Members can put away a few pounds a week and get a great interest rate.
This is perfect for those who relied on schemes such as Farepak to spread the cost of Christmas – and with a greater return.
Those who establish a savings record can then take out loans between £50 and £500 at very low rates of interest, just 0.95 per cent above the Bank of England base rate and fixed for the life of the loan.
Given that a typical Provident Financial loan is £320 with a rate of 180 per cent APR, the current 6.20 per cent offered by the Dunfermline scheme represents a huge saving for those trying to manage their finances on a tight budget.
Even then, financial education is the key. The government needs to promote more initiatives such as Glasgow's money week to encourage good financial practice from an early age and let those who are being targeted by these doorstep companies know that there are alternatives.
If the Scottish Government is serious about tackling poverty in Scotland and getting rid of the debt culture in this country, then these measures would be an important first step in the right direction.
• Ken Dow is the senior manager, community development at the Dunfermline Building Society
The full article contains 512 words and appears in The Scotsman newspaper.
