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Credit for the poor or just poor credit? Emerging lessons from overseas Dr Chris Deeming, Senior Research Fellow Persona PowerPoint Presentation
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Credit for the poor or just poor credit? Emerging lessons from overseas Dr Chris Deeming, Senior Research Fellow Personal Finance Research Centre. France. Consumer credit market €156b 8% GDP [UK 16% GDP] Financial exclusion low - 2% population

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Credit for the poor or just poor credit? Emerging lessons from overseas

Dr Chris Deeming, Senior Research Fellow

Personal Finance Research Centre

france
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?
germany
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?
australia
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
australia current reforms
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???
australia big society affordable credit initiatives
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
australia big society affordable credit initiatives1
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
international evidence summary
International evidence (summary)

*State owned pawn-broking.

european commission irr consultation
European Commission IRR Consultation
  • Industry – little support for IRR
  • Consumer groups – importance of IRR
  • Member states – mixed +/-
consumer credit regulation and advice bill 2010 11
Consumer Credit (Regulation and Advice) Bill 2010-11

Type of Bill: Private Members' Bill (under the Ten Minute Rule, SO No 23)

Sponsor: Stella Creasy

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.”