(Taken from The Herald Scotland)
A Glasgow housing association is teaming up with a low cost loan service, and CDFA member Scotcash to help tackle “zombie debtors”.
The service, launched by the agency Scotcash and North Glasgow Housing Association in October, is already benefiting tenants and residents.
Originally formed in 2007 by the council, GHA and the Royal Bank of Scotland as part of the Financial Inclusion Strategy for Glasgow, Scotcash is in the unsecured personal lending business but aims to provide much more than a short-term solution to families struggling in poverty.
It offers affordable loans and bank accounts and has already seen more than 150 clients and made more than 50 loans, helping protect borrowers from other lenders such as loan sharks.
Steve Inch, chair of the Scotcash board, said the collaboration – which sees a loan advisor based full time in the offices of North Glasgow Housing Association, also helped avoid the phenomenon of “zombie” loan accounts.
“There’s a new term being coined for payday borrowers who are able only to pay the interest on their loans – zombie debtors – so that the principal debt just rolls on, and while there’s talk of those institutions having a code of conduct introduced, that’s only in the pipeline at present and we want people to know that there is an alternative in the shape of Scotcash,” he said.
“Our city-centre office had so many inquiries that it could take two weeks for an appointment and quite often customers didn’t turn up, for a number of reasons. The main one tends to be that their need for money was so urgent that they had to go elsewhere, such as payday lenders or illegal lenders and that simply makes their problem worse.
Mr Inch explained: “An average loan size at Scotcash is £553 over 42 weeks and a £500 loan repaid over a year would cost a Scotcash customer £84.52. With a big home credit or doorstep lender it would cost £410, while payday lenders can have an APR of over 2000% and illegal money lenders even higher. Since Scotcash opened in 2007 we have provided 4500 loans and in the first full month in Springburn this office has awarded 92 loans with the total loaned being £23,000 – rounded up – and the average loan being £250.”
Personal debt is a crisis which is getting worse, rising across Britain by £629 million since August, with provisional figures from Citizens Advice Scotland (CAS) for 2010-11 showing a 6% increase in debt cases, which is the equivalent of 400 extra cases for every day of the year.
“We aim to help our customers maximise their income and, just as importantly, to minimise expenditure,” said Mr Inch.
“It’s not just about lending money at a low rate of interest, important though that is. We offer a very approachable service where we can establish exactly what people need, which is sometimes money advice or rescheduling a debt, and since 2007 800 of our customers have come to us for free advice alone, which has made life easier without the need for further debt.
“However, loans are a big part of what we do and as a Community Development Finance Institution we offer loans without clients having to save regularly. Many of our customers would be turned down by credit unions but unfortunately not by payday lenders.”
The services provided by Scotcash include helping customers open basic bank accounts and savings accounts, with 350 people having now opened savings accounts and another 1500 opened basic bank accounts.
“That alone makes such a difference – they can save money by direct debit or perhaps have access to an overdraft, which is considerably cheaper than most loans,” said Mr Inch.
“We’re helping people plan positively for the future and get out of a miserable spiral of debt and I’d like to see this service expand into the north west, south east and east end of Glasgow and to go Scotland wide to help the financial situation of thousands of people.”