Agenda item

This report asks Members to consider the final report of the in-depth review of Fair Access to Credit and agree the findings and recommendations of the Task Group set up to carry out the review for referral to the Cabinet on 4 September 2012. 

Discussion:

The Chairman of the Task Group, Councillor Hicks, gave a presentation setting out the context of the review and the main issues considered, together with the outcome of the review leading to the 29 recommendations. The main findings of the review were:

·        The role of the Council in supporting Medway residents affected by unaffordable credit – work to enable credit unions, promote financial literacy and support the establishment of a Social Impact Board

·        Strengthening the rules governing the issue of lending licences and, recognising that an effective strategy in combating illegal lending was an alternative supply, addressing the lack of affordable credit – included focus on giving local authorities greater control over the planning process and enabling affordable alternatives such as credit unions

·        How the Council could promote financial literacy and affordable lending and debt counselling – recommendations to promote the integration of financial education in to the curriculum, financial literacy for all and promote the timely access to appropriate and quality advice.

The committee welcomed the draft report from the Task Group, recognising the comprehensive facts and information it delivered and that problems with debt was not just in deprived areas but also across the whole of Medway. Members also understood that this was currently a high profile national issue with changing regulation, frequent announcements and research from a range of organisations coming forward on a regular basis, which would continue to inform this debate, and that this review would also contribute to the ongoing national dialogue.

Members discussed doorstep lending acknowledging that families saw this as a reliable form of loan when they needed something because their parents and grandparents had used this form of lending in the past. Therefore it was about trying to break that specific cycle of lending by informing people of the benefits of Credit Unions, which would only charge its members a maximum interest rate for a loan of 2% per month or 26.8% APR, rather than the substantially higher interest rates charged by other lenders, some being several thousand percent.

The committee was also advised of the Task Group’s finding that banks were unwilling to provide short-term low value credit and that the cost of an unauthorised bank overdraft could be set at a charge of £5 or £6 per day, with examples of actual APR of an overdraft transaction at 90,888%.

The Task Group advised that people did not necessarily always choose the lowest cost loan but often made their decision on ease of access and speed of receiving the loan. It was very important to be able to provide people with the relevant information in order that they could make an informed decision before taking out a loan and many of the recommendations sought to assist this. A good first step to achieving this was to ensure that young people received the relevant training and information whilst at school, in order to help them with their priorities and financial decisions in the future. For people already with debt problems, it was important that it was easy for them to access information and direction to free debt advice.

With reference to the term “support” in recommendation 9, it was clarified that the Task Group welcomed the research being undertaken by Bristol University into caps on the total cost of credit and suggested that the recommendation was amended accordingly.

Decision:

The Committee agreed:

(a)that the Fair Access to Credit review was referred to Cabinet on
4 September 2012 for consideration, including any comments from the Regeneration, Community and Culture Overview and Scrutiny Committee with recommendations 1 – 29 as set out in the report with the amendment to recommendation 9 as follows:

“That the Council welcomes the appointment of Bristol University’s Personal Finance Research Centre to carry out research into the impact on consumers and business of a variable cap on the total cost of credit that can be charged in the short to medium term high cost credit market. The research is due to report in summer 2012 and it is recommended that the Council review and respond to the Government response to this research”;

(b)to thank all the officers who supported the Task Group during this review.