Provident Financial Charges 545% Interest

posted: 29/07/2009

People in poverty, as many living with HIV are, who take out loans from door-step lender Provident Financial are charged "extortionate" interest rates, say Barnardo's, the children's charity who work closely with George House Trust.

Provident Financial reported a rise in profits despite the credit crunch squeeze on household budgets. The company, known as "the Provvy" to many, agreed some of its customers were being charged annualised interest rates of up to 545%, but said it played a valuable role in improving people's living standards – and keeping some of them out of the clutches of loan sharks. Its business practices have certainly impressed some City analysts. Numis Securities today hailed it as "probably the most profitable bank in the world".

Provident Financial, whose consumer credit arm sells small loans door to door, said pre-tax profits rose 3.5% to £53.1m in the six months to 30 June. It has more than 2.1 million customers, 400,000 of whom hold its credit cards. Peter Crook, chief executive, said that despite the challenging environment, the company expected to deliver "continuing quality growth" during the next few months.

His firm has seen a big rise in loan applications since the high street banks began to tighten lending criteria. The home credit industry is where rejected applicants from the high street lenders – some with poor credit histories – can turn for loans.

Call for consumer investigation

Barnardo's today called on the Office of Fair Trading to investigate the practices of lenders that "prey on the poor". It was concerned about the pressure on people to take out "punitively high-interest" loans. The charity said the firm's "extortionate" interest rates "are typical of many doorstep lenders which will continue to flourish unless the government steps in".

Barnardo's chief executive, Martin Narey, said many low-income families were forced to "take what they can get" because banks did not want their custom. The charity cited examples of Provident loan calculations, claiming that, for a £500 loan over 31 weeks, the total repaid would be £775, an interest rate of 365% APR. For a £500 loan over 23 weeks, the total would be £747.50 – an interest rate of 545% APR.

Crook acknowledged Provident Financial was "not the cheapest lender in town", though this partly reflected the fact that an agent called at the customer's home every week to collect their repayments.

The credit crunch means these fringe lenders thrive, as people find it even more difficult to borrow from traditional high street lenders. Crook said customer demand was "a little bit weaker than you might think. People are unsure about whether they will still be in work in three months' time". Many of those wanting to borrow from his company already had too much debt. Its home credit division was turning down about two-thirds of applicants.
 

Money problems?

Provident Financial and similar doorstep lenders offer people in poverty a very bad deal, but one that is hard to resist when there seems to be no alternative.

An experienced former Citizens Advice Bureau money adviser reports that once people are in their clutches it is very difficult to extract yourself without help - the weekly doorstep collector works hard to be your "friend," but turns on the pressure to collect the weekly payments, and tries to "help" by offering a new loan, so you always owe them money and can rarely escape. They work on commission. Of course they are friendly and keen to help - they are making a good living off you and others.

George House Trust can provide considerable support with money problems - our welfare fund, access to other funds such as Crusaid - financial help. People living with HIV in NW England wanting advice and assistance should contact our services team for our specialist debt and money advice.

George House Trust Debt and Money advice
Help with dealing with your debts and managing your money, from a specialist adviser from Manchester Advice.

Thursdays 10.00am - 12.00 midday

Mondays 2pm - 4pm.

Please call to book an appointment - 0161 274 4499.

Source

Social Fund Swamped

posted: 28/07/2009

The government-run emergency fund to help the most vulnerable in society is failing those who need it, according to the damning findings of an independent review.

The Social Fund, administered by Jobcentre Plus, provides lump sum payments, grants and loans to help the poorest in society meet needs such as basic household items and clothing. But according to the Social Fund commissioner's annual report, it is failing to cope with requests for help.

Sir Richard Tilt, the commissioner, said applications for loans had gone up from 1 million to 3m over the past couple of years and the system could not cope with demand. Fewer than half of those who phoned a crisis loan telephone line managed to get through to an adviser, the report found. In some places, such as Bristol, the success rate was less than 7%.

Tilt called for the £141m-a-year fund to be increased to £200m as a matter of urgency, given the current economic conditions. He warned that failures in the system would end up driving people into the arms of loan sharks. "The amount of money is not huge if you think about the money that has gone into financial problems," Tilt said.

Social Fund details from Department of Work and pensions

Social Fund advice from Citizens Advice Bureau

George House Trust runs a welfare fund for people living with HIV in NW England and also makes applications on behalf of people to other funds, such as Crusaid.