Bank attitudes 'have led to rise of doorstep lenders'

30/07/2009

More and more people are turning to short-term, high-interest loans in order to make ends meet in the credit crunch, recent reports suggest.

The UK Insolvency Helpline said today that the tightened credit conditions imposed by banks in the crisis had resulted in borrowers searching out alternative means of getting loans.

This can include so-called "doorstep" and "payday" credit - whose annual interest rates can reach into the four figures.

Children's charity Barnardo's also launched a new campaign earlier this week, which is aimed at putting pressure on the authorities to take tighter control of high-interest lenders.

Stricter scrutiny of sales techniques and a relaxation of some criteria for borrowers applying for "mainstream" loans at high street banks are both recommended by the report.

Ian Boden-Smyth, spokesman for the UK Insolvency Helpline, said: "You have seen banks on the high street turn their back on the public. We have even seen high-risk, adverse credit lenders close their books so people have nowhere to turn apart from high-interest lenders.

"Behind the scenes if you do look, if you do go to your local credit union, if you do go to your local advise bureau or organisations like ourselves you will find that there are lots of people who are willing to offer normal rates under the financial inclusion bill."

Kevin Still, EuroDebt director, added: "Some of the high interest credit facilities that UK consumers are turning to are not designed to be long-term and that is why some of the compound interest rates run into hundreds or thousands of percent. Sometimes people are trying to use doorstep or payday loans just to fund other credit repayments, which is a recipe for disaster.

"If this is the case then non-borrowing solutions to debt problems should be seriously considered, for example a Debt Management Plan, an IVA or even bankruptcy. EuroDebt would strongly recommend taking professional advice when it is clear that household income doesn't cover all the monthly expenditure even after making tough budget adjustments to household spending."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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