Tthe city of Sheffield will, on Monday, launch a range of loans for distressed residents in a retaliation against high-interest deals from Provident Financial, Brighthouse and Wonga. The move, he claims, will save its poorest residents £ 20million in just one year.
The new financial services brand, called Sheffield Money, is backed by the city council and regulated by the Financial Conduct Authority.
He promises loans on his website in as little as 15 minutes, a downtown money “shop” for people to call for loans, and phone application service for those who can’t. surrender in person.
He is confident that around 25,000 residents, especially tenants, benefit recipients and the unemployed, will take out loans from Sheffield Money over the next year. He also believes the business model could be replicated across Britain, giving hope to millions of people struggling with sky-high interest rates on their debts.
Its rates are far from the lowest in the market – but Sheffield is not trying to compete with Tesco or First Direct. Debt-ridden residents can pay 272% on 12-month loans from home seller Provident Financial, but will be offered between 49.9% and 89.9% by Sheffield Money. Someone who wants £ 500 for a year currently has to pay back £ 910 to Provident Financial, but only £ 610 to Sheffield Money.
While 89.9% APRs will strike many as remarkably high, the reality is that borrowers with bad credit are automatically excluded from “best buy” rates. Instead, many turn to “the Provvy” which handles home collections, or Wonga, which charges 1,509%.
Meanwhile, Brighthouse sells home appliances on a weekly basis, leaving customers to pay up to £ 700 for white goods that will cost less than £ 300 at Sheffield Money (see sidebar).
As Sheffield City Council Chief Julie Dore says, “Payday and home lenders have scammed and exploited some of our city’s most vulnerable people, taking advantage of their need for available credit and charging interest rates. exorbitant. Sheffield must be able to offer these people a fairer option that will prevent them from having to go to these notorious lenders ”.
She adds that the program offers a double bonus because, instead of excessive debt repayments sucking money out of the region, it will instead stay in the city and be spent on goods and services.
Sheffield tenant Michael Wiggins, 36 (assumed name), who has borrowed from home lenders and ‘hire-purchase’ stores such as Brighthouse, is typical of those Sheffield Money is hoping to help. He suffers from depression and mental health issues and does not work.
“For the past eight or nine years, we’ve been skimping and saving. Things are tight. End of the story. At the moment we have a TV and a washing machine in rental stores with option to buy. I repay it amply, but I can’t do anything – no one else would give us anything.
“We have a big family so we needed a big washing machine – it would have cost around £ 650 in the shops but we’re paying around £ 2,000 for it. Our TV would have cost around £ 500, but we’re refunding around £ 1,000.
“I used home lenders when needed. You have to, but the prices are ridiculous. If Sheffield Money weren’t asking for ridiculous amounts of money, I would definitely use them – anything cheaper would be a lot better.
Most importantly, city council taxpayers are not at risk if something goes wrong and people like Michael don’t pay back the loan.
Sheffield Money has brought together a large number of credit unions and nonprofit loan providers, in effect acting as a broker and one stop shop. They’ve also teamed up with one of the country’s biggest white goods vendors (he can’t name them yet) to take on Brighthouse.
Will Sheffield Money be more successful than the dozens of credit unions across the country, which, while well-meaning, have failed to seriously challenge high-interest lenders?
Until recently, credit unions could charge a maximum of 2% per month, although that amount is now capped at 3%. Even at this level, which equates to an annual APR of 42.6%, the level of default means credit unions struggle to lend to many high-risk groups and have to turn down many requests.
Sheffield Money says it will direct its better-off applicants to offers offered by its credit unions, which start at 12%. But for those with poorer credit scores – such as the unemployed or benefit recipients – he has partnered with Five Lamps, a community reinvestment organization in Teesside that, since 2007, has specialized in small children. short-term loans to disadvantaged households in the region. . Last year it made 10,000 loans, averaging £ 350 each.
The reimbursement costs compare well with those of Wonga. A Loan of five £ 200 lamps taken out over six months will cost £ 9.05 per week in refunds, or £ 235.30 refunded. If the same person went to Wonga for a £ 200 loan, the cost would be £ 248 – and they want the money back within 30 days, with hefty late payment penalties.
But Sheffield Money is keen to stress that this isn’t about offering a cheap loan to people who can’t really afford to pay it back. Five Lamps says he must turn down about half of all applicants, when it becomes clear from a credit search that the person cannot afford to repay.
Sheffield Money will help rejected people by offering them debt counseling service. A Citizen Advice agent will visit his office in the city center, but only one day a week initially.
Five Lamps says he had to write off about 13% of the money he advanced, which is high but a fraction of the common write-offs with many payday lenders.
For larger loans, up to £ 7,500, Sheffield Money will direct borrowers to its credit union partners, Transave UK and Sheffield Credit Union, although it says loans of £ 1,500 are more typical.
Rob Shearing, Managing Director of Sheffield Money, says he is determined to run the operation on commercial lines, while providing a viable alternative to existing private sector providers. “We are a non-profit organization, but we will make a profit and we will reinvest that profit. “
He previously ran an independent financial advisory firm and says cost control will be at the heart of their business.
The operation will begin with four advisors at the branch, although Shearing expects the majority of cash requests to be made online.
Unlike banks and loan providers, staff will not be run by commissions or have targets for selling financial products.
“Our staff are there to give great advice on the best solution for our clients – if we can find a better option for someone than to lend money, then we will not lend.
“When we lend, we don’t make the loan bigger or the term isn’t longer than it should be. “