Healthy Cities? by Tim Townshend

Author:Tim Townshend
Language: eng
Format: epub
Publisher: Lund Humphries
Published: 2022-10-15T00:00:00+00:00

Sub-prime finance and high-cost credit

Many poorer neighbourhoods in the UK have also witnessed the withdrawal of mainstream banking, as institutions streamline their provision and increasing proportions of customers and businesses switch to online services. Moreover, while pawnbrokers (where a loan is secured against an item of value) have always been present in poorer neighbourhoods, more recently there has been a burgeoning of ‘payday’ loan and ‘rent-to-own’ shops charging rates of interest that far exceed those of mainstream credit providers.

People with poor ‘financial literacy’ – those who find it difficult to understand basic financial matters – are particularly susceptible to taking out payday-type loans (Townshend, 2017). Although a cap was introduced in 2015 that means interest must not exceed 0.8 per cent per day and the total cost of the loan must not exceed 100 per cent of the amount borrowed, these rates mean borrowers still get into difficulties. Increased exposure to, and accessibility of, these services adds pressure to take out multiple loans – either consecutively or simultaneously (Townshend, 2017) – and in extreme circumstances people fall prey to illegal loan sharks. Again, as with problematic gambling, indebtedness adds to the overall burden of poor mental health in poorer communities.

Encouragingly, the number of payday loan shops has decreased since the 2015 imposition of interest caps (and the rent-to-own retail sector also appears to be losing some popularity). However, such services remain a concern in the most deprived communities.

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