Download Dr Chris Deeming

Credit for the poor or just poor credit?
Emerging lessons from overseas
Dr Chris Deeming, Senior Research Fellow
Personal Finance Research Centre
www.pfrc.bris.ac.uk
2
France
•
Consumer credit market €156b 8% GDP [UK 16% GDP]
•
Financial exclusion low - 2% population
•
Household debt relatively low - debt to income ratio at 102% of nominal
disposable [171% UK]
•
Credit market major retail banks (e.g. BNP Paribas), and consumer credit
providers (e.g. supermarkets, car dealers)
•
APR are tightly specified by the Banque de France
•
Sub-prime market underdeveloped
•
Social Cohesion Fund, government programme 2005, APR 4-8%
•
Regional schemes, pawnshops (Prêt sur gage), illegal?
•
Credit access problem for low income families (Policis)
•
Is this a problem? Question how do families manage?
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Germany
•
Consumer credit market €224b 9% GDP [UK 16% GDP]
•
Financial exclusion low - 3% population
•
Household debt relatively low - debt to income ratio at 99 per cent [171% UK]
•
German IRR – 1990 Consumer Credit Act stops ‘extortionate’ lending
•
Comprehensive national credit reference database - ‘risk’ assessment
•
Mainstream and co-op banks provide credit for low income families (e.g. DZ
Bank, Volksbank, Raiffeisenbank, Sparkassen)
•
Sub-prime lending sector limited
•
Pawnbroker, Illegal lending?
•
Credit access issue for low income families (OFT)
•
Is this an issue? What do low income families go without?
4
Australia
•
Consumer credit market like UK
•
Financial exclusion low - 3% population
•
Household debt relatively high like UK - 173% of disposable income
•
Sub-prime market developed
•
Payday lending worth $500m per annum
•
State not national regulation – IRR ‘patchwork’
•
Growing social banking sector , ‘Big Society’ type initiatives
•
Debate about regulation like UK, government reforms – IRR?
•
Access to credit less an issue for low income families
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Australia: State regulation of high-cost credit
State or Territory
Australian Capital Territory
Approach
48 per cent APR comprehensive cap
New South Wales
48 per cent APR comprehensive cap
Northern Territory
No regulation beyond UCCC
Queensland
48 per cent APR comprehensive cap
South Australia
No regulation beyond UCCC
Tasmania
No regulation beyond UCCC
Victoria
48 per cent APR interest rate cap
Western Australia
Licensing required but no cap
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Australia: Current reforms
•
Comprehensive national licensing regime for all providers of consumer credit
•
Code of conduct responsible lending (unsuitable products)
•
Improved sanctions and enhanced enforcement powers for the regulator
•
Expanded consumer protection through court arrangements
•
Provisions to stop predatory lenders from exploitative practices such as using
household items as security for cash loans
•
IRR???
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Australia: ‘Big Society’ affordable credit
initiatives
• NAB (National Australia Bank) No Interest Loan Scheme (NILS)
• Good Shepherd (Christian charity) idea 30 years ago
• Small, no interest loans for people on low incomes for the
purchase of essential household goods
• Loans are safe, and affordable – in the region of $800 to $1,000
– and are completely free of interest and fees
• $15 million to expand NILS, $130 million capital boost to support
lending to low-income groups
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Australia: ‘Big Society’ affordable credit
initiatives
• ANZ (Australia and New Zealand Bank) Progress Loans as ‘safe
and affordable credit’
• Partner organisation Brotherhood of St Laurence
• $500-$3,000 for essential household items (<$5,000 for a car)
• interest rate @ 12.7%, term is flexible 1-3 years
• $3.5 million in loans so far
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International evidence (summary)
Australia
France
Germany
UK
M ainst ream
•Term loans (e.g. banks)
•Term loans (e.g. banks)
•Term loans (e.g. banks)
Term loans (e.g. banks)
•Retailer credit cards
•Retailer credit cards
•Retailer credit cards
•Retailer credit cards
•Mail order
•Mail order
•Mail order
•Mail order
•’Big society’ (e.g. NILS)
Sub- prime
•Payday loans
•Payday loans (e.g.
Wonga, Uncle Buck)
•Cash converters
•Cash converters
•Home Credit
•Home credit (e.g.
Provident)
•Rent to own
•Rent to own
•Pawn-broking
•Cash Store
*State owned pawn-broking.
•Crédits Municipaux*
•Pawn-broking
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Agency/Structure - extortionate lending as the
problem!
Human Agency
Agency ‘problem’
Social Structure
Structural ‘problem’
e.g. OFT - consumers need help to
make informed decisions on highcost credit; industry working with
others (including government) to
provide better information to
consumers on high-cost credit
e.g. Better Banking campaign (500
organisations)
interest rate caps to help prevent
extortionate lending
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European Commission IRR Consultation
• Industry – little support for IRR
• Consumer groups – importance of IRR
• Member states – mixed +/-
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Typology of welfare-capitalist societies
Liberal
Conservative
Social Democratic
Communist
Countries
•UK
•US
• Australia
•Germany
•Italy
•France
•Norway
•Sweden
•Denmark
•former East
Germany
Governmentality
Market (self reg)
Decommodification Relatively low
(welfare)
State (high)
Relatively high
(welfare)
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Affordable Credit, Way Forward UK
Financial/Credit exclusion: new assessment needed
Information asymmetry: rates and fees
Regulation: industry could/should do more
Banks: could do more to make affordable credit available (e.g. AUS)
Government: could do more to make affordable credit available, IRR
needed?
Social/Third sector: uncertain at present, talk of ‘big society’; credit
unions likely to need government support, sustainable? (e.g. Aus and
UK under Labour)
Choice: improved affordable credit choices for low income families
Policy framework: living standards, broader issues of consumption,
debt, sustainable society
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Questions/issues for discussion
•What can we learn from others?
•Evidence-base, disputed, transferable to UK?
•IRR?
-Better Banking Campaign needed
-OFT kill UK subprime sector
-what level IRR? Australia debate behind closed doors
•Big society? What chance for credit unions and social sector?
•Public attitudes? Users and general public not just ‘experts’?
•Important to understand the wider social policy context
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Down side (household indebtedness %
disposable income)
UK
France
Germany
Liabilities
1998
109
1999
114
2000
117
2001
121
2002
134
2003
145
2004
160
2005
162
2006
176
2007
184
2008
178
Mortgages
79
83
85
89
97
107
119
121
130
138
136
Liabilities
73
75
77
78
76
80
84
91
97
100
102
Mortgages
52
54
53
54
55
57
60
65
70
73
77
Liabilities
109
114
115
112
112
111
110
107
105
102
98
Mortgages
67
71
72
71
72
72
72
71
71
69
66
2009
171
133
107
..
99
67
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Consumer Credit (Regulation and
Advice) Bill 2010-11
Stella Creasy MP “the rates charged do not reflect any economic rate. One of my
frustrations in running this campaign has been that none of those companies will explain to
me the rates of interest that they charge, yet they all vary markedly. For example, pay-day
loans can go from 4,500% with Wonga to 2,500% with Uncle Buck, or 1,200% with Payday
UK, or 1,700% with Kwik Cash. One might argue that they are just making the numbers up
because they can. Above and beyond their fixed costs, they can charge what they like. That
lack of any pressure to address the way they are lending is very negative.”
Type of Bill: Private Members' Bill (under the Ten Minute Rule, SO No 23)
Sponsor: Stella Creasy