13.06.2013
Our high streets don’t look like they once did. It’s nothing new to point out that bank branches have been closing. In fact, since 1990 44% of branches have gone. This has had disastrous consequences for communities, for small business and cause distress for older people and those who can’t travel.
So what has taken their place? According to the old Natwest ad it was wine bars that took over.
In my local high street the banks haven’t turned into wine bars. They’ve turned into bookies, pawn shops and payday lenders.
I don’t think I’m alone. Companies preying on the poor and making the most of austerity Britain are taking over many of our high streets. They are sucking money out of communities at a time when local shops and services desperately need it.
The practices of payday lenders have been under scrutiny of late, with widespread criticism of their extortionate interest rates and irresponsible lending. The Office of Fair Trading released a damning report on the industry earlier this year, which reported widespread evidence of breaches of the law and lending to people who cannot afford to repay. A recent article in the Independent pointed out the number of payday lenders that just happen to be located next to a bookmakers, and asked if they could be targeting gamblers.
However, 240 payday lenders now operate in the UK, and they’ve got seven million customers.
If we take Deptford High Street, in south east London as an example, it has lost branches of Halifax, NatWest, Woolwich, Lloyds and a post office. It now boasts seven bookmakers, two pawnbrokers and a payday lender. It’s not a trend that local businesses or residents are happy about.
But it’s a trend that has caught the attention of Ed Miliband. The Labour leader recently announced proposals for new planning rules to give councils greater powers to prevent payday lenders and pawn shops taking over town centres. Speaking at the launch of the party’s local election campaign, Mr Miliband said: “Everyone here today knows how important our high streets are to towns and cities across Britain. They’re not just the places we go to shop. They’re the heart of our local communities. But today our high streets are changing – and often not for the better.
“Take an example. One of the fastest growing businesses on the high street are the payday lenders, sometimes charging extortionate rates of interest. In hard times, it is no wonder people turn to them. But often they just engulf people in debts that they cannot pay. Interest rates of over 1000%.”
“Currently if a bank branch closes down, there’s nothing a council can do if a payday loan shop wants to move in and open up in the same place. Even if there’s another lender next door. That can’t be right.”
Labour’s plans for local solutions to local problems are very welcome.
But as well as having power to prevent money shops and cash converters from opening, local councils need to do more to provide an alternative. If there are no banks or payday lenders on the doorstep, the need for credit will not disappear, and the worst outcome would be for people to turn to loan sharks and illegal lenders.
The obvious local solution is ‘community development finance institutions’. That is, fair and affordable finance, provided by local ethical lenders.
Some local councils already support CDFIs. Teignbridge District Council, for example, works with its local CDFI, Wessex Resolutions, to deliver part of its housing strategy. The Council provides funding to the CDFI for lending to vulnerable homeowners in the area who need help in bringing their home to a decent standard. Wessex Resolutions can provide affordable loans to help people living in poor, unhealthy conditions but who can’t get a bank loan. In the past they’ve helped a family with a moth infestation, a young couple living without proper heating or insulation, and an older woman who had a tree literally growing into her house.
This is just one of the ways in which CDFIs can help local councils deliver on their objectives. They can also help people to set up their own businesses, and help existing businesses survive and grow. This has obvious positive impacts for local economic development, job and wealth creation.
And CDFIs can provide an affordable option for people who may otherwise turn to extortionate high cost loan companies. CDFIs charge an average APR of 39% compared to the high cost lender equivalent of 272%, and the payday lender equivalent of 2,214%. And if all those seven million people using payday lenders used a CDFI instead they would save a total of £2.1billion. That’s a lot of money that could be spent instead on goods and services in local communities.
Our recent report, Inside Community Finance, highlighted that last year councils provided £1.9million of funding to help CDFIS operate. But much more is needed if CDFIs are to meet the growing demand and make an impact on our high streets.
It is only when CDFIs are a regular feature on our high streets, providing money management advice, helping people open bank accounts, and providing credit to those who can afford it, will they really be able to challenge payday lenders, and really bring money back to our communities.
This blog post by Sam Collin originally appeared in the Information Daily.