Sadly, for anybody who grew up in the South Wales Valleys, the credit crunch was nothing new. Indeed many people have been suffering from a crisis of credit in constituencies like mine for many years.
For too long, low-income families and the vulnerable in town and villages in communities around the country, such as those in the valleys, have been targeted as easy prey by doorstep-lenders and other loan sharks.
Indeed, I can well remember as a child, the woman from the Provident, a doorstep lender which charges loans at sky-high interest rates hammering on doors while people cowered inside because they did not have the money to pay her.
Unlike many other EU countries, the UK does not guarantee people legal access to affordable credit. Lenders can refuse to lend to anyone, for any reason, and they can charge any price for their lending. They can, and do, impose interest rates at percentage rates in the thousands.
After deciding to make this the topic of my maiden speech in the House of Commons, I carried out some research into the matter and what I found was shocking. Safeloans Limited, for example, charge a typical annual percentage rate of 2,120.1% on 30-day loans.
Another company, Wonga.com Limited, charges a typical APR of a staggering 2,689%. You can imagine my chagrin when I tuned in to Match of the Day recently and noticed that they are now the official shirt sponsor of Blackpool Football Club, thus providing their high interest lending with a legitimacy that they do not deserve.
Things are made worse when the majority of high street banks do not lend sums under £1,000, driving people who want to borrow smaller amounts into the hands of these unscrupulous companies with their high interest rates.
To me, extortionate rates of interest are simply disgraceful, and we should not allow such unscrupulous companies to take advantage of the vulnerability of some of the poorest in our society.
In the present financial climate, I am seriously concerned that extortionate lending is going to become widespread and will remain unchecked by the Con-Dem coalition.
So how do we combat this? The answer lies in providing support for credit unions, which provide credit at reasonable rates to people who would otherwise not have access to it. Credit unions are committed to building its members’ wealth. The last government provided £98.75 million-worth of support to credit unions and community development finance institutions, which provide support for small businesses. Labour also legislated to ensure that credit unions can fairly compete with mainstream providers of financial services.
As a result of these measures, credit union membership has more than doubled since 2000; yet strengthening the credit union movement is only a small step in tackling financial exclusion. However, we can go further banks should be required to provide bank accounts to all consumers with a valid address, the Post Office should be transformed into a people’s bank, and a cap on interest – especially on smaller sums – should be introduced.
If we are to be serious about fighting financial exclusion, these measures, together with support for credit unions, should be at the heart of our policies in the coming years.
This week the Welsh Assembly Government announced £3.4 million to support the growth of credit unions, providing universal access across Wales and giving everyone access to affordable financial services.