Payday loans, with APR rates from 300 per cent to more than 4,000 per cent, seem to be everywhere.
But there are growing concerns about the ease and speed of being given such credit. Pushing back repayments to the next month and the next can soon become an expensive and risky habit.
So, the facility to cap the worst excesses of the payday market, as announced in the House of Lords on Wednesday for introduction in 2014, is welcome.
But payday loans are not the only players in the sub-prime and high-cost loans field. Many of those on low income or benefits resort to home credit; the largest operator has 11,500 local agents making weekly visits to 1 in every 20 UK households to collect repayments. Other legal sources of credit include rent-to-buy stores and pawnbrokers.
Regulation can pose as well as solve problems. There is a danger that when regulation prevents the availability of easy legal credit, some people will turn to illegal loan sharks.
What we need in addition is for children to be taught to manage their finances from an early age, and for alternatives to high-cost lenders to be available to those who find themselves in need of credit.
This is where credit unions can be a solution. They are responsible, not-for-profit local community organisations, offering affordable loans and promoting savings.
Hampshire’s local credit union is United Savings and Loans, based in Portsmouth. USAL has 7,430 active members and is owned and run entirely by its members, with no external stakeholders to be paid dividends and a voluntary board of directors – so all operating profit goes back to its members.
In addition, because it is not-for-profit it can offer higher savings rates than many high-street banks.
There is great scope for credit unions to grow here as they have in the US, Australia and Canada – and the government has helped by implementing de-regulation measures and embarking on a modernisation programme in conjunction with the sector.