Long before the outbreak of COVID-19, local authorities were exploring new ways to support residents in financial difficulty. Our previous work for Rose Doran at the Local Government Association, involving 10 councils, identified the need to ‘reshape financial support': to better identify people in difficulty and change provision, including debt collections, to help build financial resilience.
A key component of this agenda was the need to ensure that those not poor enough to obtain grants for essential items could at least obtain an affordable loan. The pandemic has increased the urgency of this work. Rent and council tax arrears have increased, and with the end of the Job Retention Scheme and payment holidays for consumer loans now looming, advice agencies have warned of a possible ‘tsunami' of debt problems. Whilst Government injected £63 million into local welfare schemes during the pandemic, charities including the Children's Society had previously warned of a £250 million shortfall.
However, a recent Carnegie UK report indicates that credit unions and other affordable credit providers are under immense pressure: furloughing staff and closing branches, amidst a decline in new applications and rising requests for payment deferrals.
One lender bucking this trend, is the UK wide provider, Fair for You, which provides affordable loans for low income households to obtain household items, including beds, cookers, fridges and washing machines. Its business model is more robust than most: revenues comprise both interest on loans, and commissions on items sold. During the lockdown it continued to lend. Since February, revenues have exceeded operational costs.
Our assessment of its social impact provides a clear business case for councils to help it scale further and faster. Surveying more than 3,500 customers, we identified how borrowing from Fair for You reduced stress, anxiety and depression, improved diets, confidence as a parent, and created more educational and social opportunities for children. Households save money too. On average, Fair for You customers who would have otherwise have ‘gone without' saved just under £30 per week. 70% escaped the high cost credit trap. 60% are better able to pay rent, council tax and other bills as a result.
As part of their plans to reshape financial support, we therefore recommend that councils now enter into formal partnerships with Fair for You: increasing referrals as part of a wider strategy to tackle material deprivation and build financial resilience as Government support for those impacted by COVID reduces.
Damon Gibbons is director of the Centre for Responsible Credit
