You may have tuned into ‘Debt on the Doorstep’, a BBC Panorama documentary broadcast last week. The programme highlighted some of the practices employed by a number of ‘Doorstep Lenders’, who offer loans to people usually on low incomes, who would find it difficult to borrow money from other sources.
We are really worried that the ending of Housing Benefit payment directly to landlords is going to create a bonanza for doorstep lenders. They are already preparing for it and no doubt will be better prepared than most residents and some landlords!
People are able to borrow small sums, often as little as £100, in cash over short periods of time, but are charged large amounts of interest. They repay the money on a weekly basis to a local agent who calls to their home.
One such company was shown to have loaned thousands of pounds at a high rate of interest to Sheila, a 60 year old woman living on her own who had been diagnosed with Schizophrenia. Another doorstep borrower, Joseph, explained on the programme that he had been in debt to a lender for 17 years.
Peabody’s welfare benefits advice team was recently approached by a resident who had taken out a £600 loan from a well-known doorstep lender in order to pay her rent and cover bills. Mrs K worked part time earning £99 per week, had severe health problems, and was in a desperate situation. Our advisors worked quickly to cancel the loan before the cooling off period was over. The agreed weekly repayment schedule would have cost £850 overall. The team also helped Mrs K maximise her income via in-work benefits, to ensure she is now better off.
With a £1,000 door step loan costing as much as £2,120 in repayments over two years, you have to question whether loan companies are acting in the best interests of consumers.
The benefits system is to change nationally in October 2013 to the Universal Credit. Claimants will receive just one monthly payment, paid into a bank account in the same way as a monthly salary. Support with housing costs will go direct as part of the monthly payment.
There is a real concern amongst social landlords that rising rent levels and falling housing benefit levels may force struggling families to bridge the gap with unaffordable sub-prime credit or payday loans.
Housing associations have a valuable role to play in tackling financial exclusion which is a critical challenge for our sector. The latest Department of Work and Pensions Family Resources Survey published in June shows that 10 per cent of people on the lowest income (less than £100 a week) still do not have access to a bank account that enables direct payments – compared to just three per cent of the general population. We can help tenants become more financially aware and more confident in money management as well as better able to access financial products and services.
In addition to continuing to provide welfare benefits advice, here are some of the things Peabody is doing to help prepare for the changes:
• Offering more financial management and budgeting support to residents, through our existing service in association with MyBnk, with defined mechanisms for referral to our employment programmes.
• Providing a comprehensive range of cost-effective payment options, with Direct Debits as a preferred option, making it as easy as possible for customers to pay and minimising collection costs, including the use of technology to improve collection.
• Supporting residents in accessing financial products or institutions – including credit unions and access to banking services.
• Assisting more residents to get and stay online, through our digital inclusion programmes.
Peabody is working to ensure that as an organisation we are fully prepared for the changes to welfare reform and their potential impact, that that we are able to support our residents who rely upon the benefits system, and who will potentially experience a significant material and cultural change.
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