Emergency state loans 'could carry interest'

22/12/2008

People on emergency state loans could have their provider switched to being a local credit union - and could pay an APR of up to 27 per cent as a result.

This is what is apparently proposed in a new Department for Work and Pensions consultation document.

At the moment, the so-called "social fund" run by the government gives credit free of interest to around 1.2 million people who claim benefits.

Total credit extended runs at around £500 million a year.

Responding, the government said that the paper had been misunderstood - and that there were in fact no plans to charge the interest.

Work and pensions minister Kitty Ussher commented: "We are absolutely not proposing to charge interest on social fund loans.

"We do propose expanding the way that crisis loans work, to make them more available to more people."

Government sources also told the BBC that the original document was poorly drafted.

Also speaking to the broadcaster, shadow foreign secretary William Hague branded the proposals "astonishing" and "outrageous".

Tags; Debt Management and Banking, Young Family Finances, Recent Graduate Debt,

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