Sharp practice
I live in a flat above a parade of shops next to a council estate. Most of the flats in our parade are let through private landlords to recent immigrants. I talked a bit more about the demographics of my area here.
You wouldn’t really expect many marketing leaflets to come through our doors, and no, the Next catalogue van doesn’t often stop here. But, still apart from the fast food ones, there is a type of leaflet which does arrive frequently. At least once a week, there’s a door drop from one or other credit card or financial services company offering loans and cheap money, a way out of your debts, help to stay in control of your budgeting…. you know their spiels. Yesterday’s one offered me a credit card with a typical rate of 39.9%, one last week was 49.9%. It’s daylight robbery, targeted at vulnerable people.
Thankfully, there are other ways. I’m hoping that in future, this scheme for people renting through a social landlord will become more generally available, and in Oxford, we have a brand new credit union. I don’t know much about the readers of this blog (except your IP addresses, of course!) but if you live or work in Oxford, you’re eligible to join. If you’re having financial difficulties, make the credit union your first port of call. If you’ve got a savings account, consider moving it across to the credit union, where it’ll help the staff build up the capital to make more loans to people who need them, give people who can’t get a bank account some security and provide local jobs and services.
Hmm - their website claims that there are “many advantages” in saving with a credit union, then lists a subset of the things that I am able to do with a bank. They are, essentially, asking people to invest in the business of lending money cheaply to people with poor credit, without giving any clue as to the sort or return one might expect. There may, of course, be a legal impediment to providing guesses about future earnings, but it doesn’t make a great sales pitch.
One of the advantages of a credit union seems to be that people are less likely to default on a loan from their neighbours than on a loan from some faceless bank that makes billions of pounds a year profit, so it’s possible for the credit union to charge a lower interest rate.
The ABCUL claims that credit unions are typically able to offer 2-3% interest on savings. You can walk in to a high-street building society and open a cash ISA with 1 pound, and receive a guaranteed 4.5% interest. It seems as though you should view the difference as either a fee that you pay to get access to the loan services (which are indeed cheap if you have a poor credit history) or as an act of charity towards your poorer neighbours who would benefit from cheap loans. That isn’t to say that this is necessarily a bad thing, and if you invested the maximum 5000 quid with the credit union, you’d only lose a hundred quid or so a year, but it should be born in mind.