Credit Unions helping Payday Loans Debt trapped UK Households

Man with credit Union Protection(NewTown, Mid Wales UK) – The critics of payday loans industry are calling for an immediate change in the regulation that will help the inveigle borrowers to come out from some complex debt cycle that include targeted help for exposed customers, improved rules and for better financial tutelage. Everyone is familiar with this fact that the payday lending industry is getting highly criticized due to their irresponsible lending, very high interest rates and excessive fees against their loan program and not only this, there are several companies that are occasionally doing fraud with the customers as well. This is actually poisoning the Loan industry and its reputation.

Due to these problems, in March 2013 the Office of fair trading had published a report and refers the market to the competition commission at the end of June. After this report, over 20 payday loan lenders has been closed and Financial Conduct Authority, who are responsible for overseeing payday lenders next April is to inspect the market in a broader way as well. Still there are other units that say that still there are many things to do which will clean up this industry even better. On Friday 20th Sep 2013, a non-profit organization named the Center for Responsible Credit aims to help protect the people and their household, had published recommendations as per the US studies.

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As per the recommendation, there should be caps on both payday loan costs and limit of the amount that one can borrow based on their monthly income. This would be managed using a database documenting all high cost credit agreements that were taken out April this year.

Using this information present in the database, it will be easy to spot the payday lenders flouting the rules. One more benefit that the Centre says as a real benefit is to be communicating with the prolific and vulnerable borrowers. The Director, Damon Gibbons said “The database could identify people who are heavy, high-cost borrowers and channel credit union offers to them. Loans can be consolidated into a cheaper one to be repaid over a longer period of time.

Credit unions are co-operatives owned and managed by people who use them. The members of Credit unions are encouraged to do monthly savings and even if it is just token sums, they can also borrow at reasonable capped rates. Gibbons said that the Government should provide 50 million euro a year rescue fund to help credit unions manage the debts for people involve in payday loans in UK. Then the borrowers will repay low interest amount to the credit union and if they fail in repayment, it will be recorded into the database and such customers will be locked out from future borrowing till they repay the credit union loan completely.

Consumer Finance AssociationThe Chief Executive of Consumer Finance Association “Russell Hamblin-Boone” who represent several big payday lenders in industry like QuickQuid, The Money Shop etc. said An Industry Code of Conduct launched past year in November are being felt after a YouGov survey released the fact that nine out of ten payday loans borrowers felt proper affordability checks were completed. In their words, “It shows customers of lenders who belong to CFA have benefited from the high standards we have put in place. We appreciate that these results don’t speak for the whole industry.”

Credit Unions are quoted by politicians, consumers and charities as a remedy of problems appearing with Payday Lending. People are getting benefits with it as well.

Jeanette Vickers, 45 from Newtown mid-wales get the benefits from the flexible approach by the local credit union. She works in a call centre for a fashion wear and home furnishing brand. The Credit Union saved her from a trap of payday debt. One year ago, Jeanette had took payday loan for her son Luke, 20 , cope when he left the home to study at Liverpool John Moores University, but after using such payday loans from several payday lenders, she get trapped into a spiral of debts that became reliant on expensive short term loans.

In her words “I once borrowed £200 and it turn to be £286 after a month. I had to roll over the loan and I spent another £86 to so on top of what I owed and the cost went to £370.”

Robert owen credit unionShe later on realized when a friend recommended the local Robert Owen credit union in newtown. In this credit union, the borrower need to create a minimum of 45 days saving history so that they become eligible to borrow but the staff at the credit union agreed on going through a quick process and lend her £600 directly with the repayment duration of 12 months.

Jeanette Says “They were amazing. They contacted all the payday lenders and repaid all the outstanding debts using my new loan. Also I had recently switched jobs so they also froze my repayments until I get my first salary. Now I have started to repay them back and even after this, I am able to save £10 per month as well.”

There are several credit unions that are already in function by signed up an expansion scheme backed by £38 million from the Government and are running by the Association of British Credit Unions to help improve and develop the services and products.

Jacqueline Velasco almost lost her home due to debt, SavedAnother payday loans borrower Jacqueline Velasco, 41, from Peckham South East London also defeated such troublesome situation of Payday Debt. Six years ago this mother of six was on a situation of losing her home since she was behind rent payments. She got a leaflet with the information about the London Mutual Credit Union and she went there office while expecting some help.

London Mutual Credit Union

There she met with one of the women working in credit union who said to Jacqueline understand what she is saying. She gets the loan from credit union that helped in continue their Psychology Degree study and look for some good job. She now works with vulnerable women and children and also training to be an immigration attorney and remains the member of the union.

Since 2009, there were 38 occurrences when the strength of credit union failed but they backed up by Financial Services compensations scheme that protects savings of up to £85,000 per member per institution in UK. In Past 5 years, FSCS has compensated almost £8 million to about 17,000 credit union depositors.


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