Moderator Calls For New Debate On Access To Credit

March 23, 2015

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The Moderator of the General Assembly of the Church of Scotland says society must debate how to create a new system of more affordable credit to help those unable to access mainstream loans.

Rt Rev John Chalmers is backing a new report from the Carnegie UK Trust, which has highlighted the need for urgent action on this issue. The report welcomes recently introduced regulations to restrict the activities of payday lenders – but highlights that a major gap still remains in the supply of more affordable forms of credit. Many people are still reliant on high cost loans and an increasing number of people are unable to access any type of credit at all. Figures suggest restrictions on payday lending will see borrowing reduced by £750 million per year, with 160 000 fewer people taking out high cost loans.

Writing in the April edition of ‘Life and Work’ magazine, the Moderator says “Credit is now a vehicle built into the fabric of modern life, but in credit markets, as with so many things in life, the poorest are most badly served and most easily exploited. Most of us do not realise how complex and challenging the credit market really is.”

“These welcome interventions have significantly restricted the operations of many high cost credit suppliers and have dramatically altered the nature of the high cost credit market. However, action to curtail lending in this sector, does not, in and of itself, reduce the need for short term, life-saving access to money. Where will those shut out by new regulations now go to borrow money? Their demand and need for credit has not disappeared.”

Mr Chalmers wrote “I wish that no one had to access money in this way; I wish that there was a universal definition of affordability and I wish that benefit rates and living wages meant that people did not have to live on the breadline, but they do. The solution, therefore, lies in addressing a vast range of underlying and overarching issues.”

The Trust’s discussion paper, Meeting the Need for Affordable Credit, is published today.

It explores how best to meet the ongoing need for credit amongst those unable or unwilling to access mainstream products and concludes a range of affordable credit alternatives are required within the financial system. The Trust has created a in a working group to advance this agenda over the next few months, and is urging a wider public debate on this issue.

Martyn Evans, Chief Executive of the Trust said: “The question of how to make credit available on affordable terms to the poorest members of our society has long been a deeply complex and contested public policy issue. However, to find the right solutions we need a much better understanding of who borrows money, how and why. Only then can we come up with alternative services that really meet peoples’ needs. Our report seeks to build some of this understanding – but we need an ongoing debate if we are achieve significant progress”

The Financial Inclusion Commission has welcomed the Carnegie UK Trust’s discussion paper on how the affordable credit sector can meet the needs of consumers on low incomes or in vulnerable situations. Sir Sherard Cowper-Coles, the Commission’s chair said: “Reluctance from mainstream banks to lend and a contraction of the payday loan market has contributed to a low income credit gap. This report raises important, fundamental questions about the provision of and need for credit. The Financial Inclusion Commission welcomes the report’s call for a wider policy debate in order to find long-lasting solutions.”

The initiative is being backed by Sharon Macpherson, Chief Executive Officer of Scotcash – a Community Development Finance Initiative in Glasgow. “Access to affordable credit remains a key issue for many low income individuals, many of whom are often paying more than better off households in interest and charges. The work of the Carnegie UK Trust is crucial in helping us raise awareness of this issue and identify alternative solutions that address the needs of those excluded from mainstream financial services”.
It is also supported by Frank McKillop, Policy Manager for the Association of British Credit Unions, who said: “Credit unions have a key role to play in the provision of affordable loans, and this important initiative should help identify and develop the best approaches to sustainably widening access to affordable and responsible credit.”

 Click here to download a copy of the discussion paper.