Blog: Payday lenders – the speech

The Community Development Foundation  (CDF) is a great little charity/social enterprise that seeks to promote community development and engagement. 

Councillor Akygyina was asked to speak at the CDF’s “Financing local activities” event as part of the LGA Conference 2012 in Birmingham, and my help was enlisted in drafting together a speech (of sorts…!).

Her brief was simple: speak for 5-10 minutes about payday lenders and what the local council is doing to combat it – specifically how Community First (a funding programme from CDF) is helping.

I had a couple of meetings with Councillor Akygyina, worked over the weekend on the speech and now…it’s been published online!

Have a read and let me know what you think!

What councils and councillors are doing to help get finance into deprived communities. 

Let me start by telling you a little bit about my borough and, specifically, my ward. The borough is based in south west London and in the first three months of this year average house prices stood at over £375,000, putting it in the top half of most expensive London boroughs. A detached property costs, on average, £1.6m, the fourth highest in London, whilst a standard semi-detached property is almost £600,000.

This year, the borough will play host to the Olympics tennis competitions and will be the scene of the 126th Wimbledon Tennis Championships. It is also the home of League Two football club AFC Wimbledon, formed after Wimbledon FC moved to Milton Keynes in 2003. And the TV show “The Bill” was recorded in the borough throughout its life from 1984 to 2010.

As for Figges Marsh, the ward I am proud to represent, the picture isn’t quite as pretty.

According to the 2010 Indices of Multiple Deprivation, Figges Marsh is Merton’s most deprived area and ranks in the 20% most deprived areas in England. Levels of income, qualifications and skilled residents are below the national average, whilst benefit claimants are above average. My ward has the highest proportion of single parent households in Merton. There is an eye opening difference between the pound shops on the high streets of my ward and the high-end boutique shops found just 15 minutes west. Over a quarter of our children are going to school without breakfast. Some 20% are given money by their teachers in order to buy lunch. Food prices have risen by 30% in the last five years. Meanwhile, the national minimum wage has risen by just 12% in the same period. But the problem doesn’t just affect the kinds of people you might be thinking of in my ward. Judith Smith from The Charity for Civil Servants says that 85% of their grants go to those on full pay, who are just not able to get to the end of the month without running out of cash. And when they’re running out of cash near the end of the month, who do they turn to?

They turn to companies like Wonga.com. Errol Damelin who found the company just four years ago and holds a 10% stake in it, is expected to make £100m after floating his company on the US stock exchange this year. One hundred million pounds. In the last four years. Some of their loans charge over 4,000% APR and even target small businesses. Last week, Premier League and Football League clubs ruled that online lenders like Wonga.com would not be permitted to advertise on their websites from next season.But the problem isn’t just online.

Our high streets have changed beyond recognition. Alongside the boarded up shop fronts of retailers that were on our high streets for decades, foodbanks and charity shops are thriving. The Trussell Trust, a foodbank that operates in the UK and Bulgaria, reported 100% increase in the number of people fed by foodbanks last year. But, perhaps most ominously, payday lenders are popping up at an alarming rate.

In front of our civic centre, I can think of two high-cost lenders on the high street within a five minute walk. One of them is The Money Shop, which in 2006 had 168 shops nationally. In December, it opened its 450th and plans to open another 100 this year. According to the National Pawnbrokers Association website, there are 15 such shops in the postcode of my ward, CR4, alone. A single loan from one of these lenders quickly becomes an all-consuming way of life. With income relatively stagnant, borrowers borrow money from payday lenders to cover the interest on their first payday loan. Then again for the second. And the third. And so on. Eventually, like Steve Perry, author of the book “When Payday Loans Go Wrong”, borrowers can find themselves with 60 different loans in the space of 18 months. Paying back thousands for something that might have been for hundreds of pounds, if not tens (some lenders offer sums as low as £50). Why is this allowed to happen?

As Clyde Loakes, vice chair of the LGA’s environment and housing board has highlighted, local people have little say in the process of premises converting to payday loan companies or pawnbrokers. Councils have limited powers to act under planning rules. All of us are working hard to try and get greater power to shape high streets in the interests of residents. But until legislative changes take place, we must work even harder to limit the growth of this crippling sector.

At Merton, we are doing this. The council and the community have come together. The council continues its commitment to the CAB, over £1m in the next three years, and delivers Money Talk events through its voluntary and community sector partners. These financial information days take place in areas with statistically high rent arrears. We also have a Money Advice Service outreach worker who holds monthly surgeries to offer financial planning advice to those who need it. The community has pulled through too as well.

The Croydon, Merton and Sutton credit union, Croydon savers, has had a very successful year. Membership has increased by 38% in the last year. I would know. I am one of them. Legally, credit unions cannot charge more than 2% a month on the reducing balance. That’s about 27% APR maximum. This is still lower than some high street banks and, of course, considerably lower than payday lenders.

I am working to ensure my residents are made aware of the choices available to them and a lot is happening.

Community First helps bring the community closer by allowing us to support various groups. We have also funded groups that offer financial education to young people in the borough. This is crucial. Young people are already suffering from the excesses of their predecessors. It is absolutely vital that we educate the next generation to prevent them from making the mistakes we might have made.

The story of my ward is likely to be replicated in many parts across the country. Times are hard. But a committed local council and community spirited residents can make it easier.

Together, we can stop it.