Press have reported this week on the financial crisis facing the doorstep lender company, Provident. The problems began in February when Provident restructured their business, replacing self-employed agents with permanent staff. Due to the length of time it took to replace the agents, debts went uncollected resulting in the value of the company dropping drastically.
The catastrophe might seem like good news to some customers who borrow from Provident, who may be on low incomes and struggling to manage financially; thinking that they may be able to avoid paying back their loans. However, credit experts said that Provident borrowers tend to be ‘regulars’ and, therefore, need new loans on a frequent basis. Customers are in fact not welcoming the news but worrying about where their next loan will come from and how to manage with the Christmas period coming up.
With the head of Provident Financials’ consumer credit division having resigned yesterday there is uncertainty as to the future stability of the company. The Financial Times reported yesterday that it is feared people may turn to other means of lending such as illegal loan sharks who charge very high rates of interest. The consequences of such borrowing can be more than just being in debt with some customers being intimidated to pay up. The report highlighted credit unions as an alternative, quoting the massive difference in APR; a Provident loan of £300 over six months with an APR of 545.5% meaning interest of £148.50, compared to that of a credit union offering an APR of just 42.6% meaning only £28.90 interest.
Although Provident and other pay day loan companies are regulated and offer immediate loans to some of the poorest people in the country, critics say the interest is crippling. People who have a bad credit history and unstable finances often feel they have no other choice, but as a not for profit, ethical and community focused organisations, credit unions can often help. Responsible lending is encouraged and members are treated as individuals with all circumstances considered for loan applications.
The Provident issues further highlight the growing debt problem within the United Kingdom. The Money Supermarket have reported that one in four people using their price comparison site are looking to borrow half of their annual income. The Bank of England, official Alex Brazier has warned that, ‘Britain’s debt binge is getting out of control.’
Clockwise Credit Union, General Manager, Teresa Manning, said, “people are always going to need to borrow money. It is important that when they do it is done responsibly and at amounts that people can manage. What we offer is a safe and affordable alternative to high cost lenders. We focus on people not profits and our aim is actually to improve the financial wellbeing of our local community.