One aspect of the recession is the growth of family debt. The Council of Mortgage Lenders predicts that half a million households will fall into serious mortgage arrears in 2009. But, as with all major aspects of the downturn, it is amongst the least well off that the greatest pain is felt.
Poor families were unattractive to banks before the crisis so they’re probably not even allowed in the building now - which is why many poor people fall back on money lending. The biggest provider of what is referred to as ‘home credit’ is a large, profitable and entirely legitimate company: Provident Financial. But ‘the Provvy’, as it is known to its customers, is constantly subject to criticism: For its door-to-door, week-to-week, small cash loans it charges annualised interest rates of up to 200%.
When I was at ippr we had events sponsored by Provident Financial and we came in for concerted criticism from various charities that saw the company’s agents as nothing more than loan sharks who had somehow managed to gain respectability. In contrast, the company itself claims to provide a unique and valued service to customers whom the rest of the financial service industry ignores.
In the end, I decided that the only way I could get to the bottom of this was to spend a day shadowing one of the thousands of Provvy agents as she went on her rounds in an estate in South London.
I was impressed. The collector had been working the same round for years. She knew all her customers well. One mother had just seen her husband put in prison, another was suffering from cancer, a third had agoraphobia. Many people weren’t able to pay that week. The agent accepted their excuses while encouraging them to start chipping away at their loan as soon as possible. One family asked for more money on top of the £50 already outstanding but the agent gently refused, advising them not to get too deep in debt. I ended up a convert. The Provident was providing a unique service to people with difficult lives who desperately needed the personal touch. The customers knew that the £30 loan today would have to be gradually paid back over the following weeks as £35 or £40, but they preferred this to burning up a credit card or begging a bank. The borrowers may have had impossibly tough lives but they weren’t the hapless or ignorant victims often portrayed by the Provident’s critics.
I wrote up my experiences, but it cut no ice with the Provvy’s critics who claimed I had been brainwashed. So, I was fascinated to read a largely unreported piece of research by the Joseph Rowntree Foundation. The Foundation had set out to explore whether a not for profit, credit union type, home loan service could be created with significantly lower interest rates than those charged by the regulated commercial sector. In essence the answer was ‘no’. What’s more, given that, even on the most optimistic of estimates, a not for profit service would have to charge interest rates of 125%, there was little enthusiasm from the third sector to provide the service.
Our social ambition should be for all families to have the economic know how and financial stability to get conventional banking services. But as long as the mainstream banking sector fails to cater for the very poor, and as long as the Government’s Social Fund is too restrictive and bureaucratic for many short term family needs, then the choice is between the Provvy and unregulated loan sharks.
Not all Provvy agents are as good as the one I spent time with, and given what they do and who their customers are, the company deserves and should welcome close scrutiny (not to mention savage mockery [avoid if squeamish]).
But the JRF report (and my suspicion is it will make little difference to the Provvy’s critics) confirms how much easier it is to attack the problems with an existing service than provide a viable alternative.