On the margins: debt, financial exclusion and low income households

Document type
Report
Author(s)
Cox, Joe; Gulliver, Kevin; Morris, John
Publisher
Compass
Date of publication
1 June 2011
Subject(s)
Poverty Alleviation Welfare Benefits and Financial Inclusion
Collection
Social welfare
Material type
Reports

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This report looks at how high interest lending exacerbates economic inequality by preventing access to affordable credit for large sections of the UK population. The report aims to: provide a snapshot of how high-cost lending is affecting lower income groups including social housing tenants and to give a human face to the statistics through case studies; contextualise the interrelated problems of high cost lending and credit dependency; put forward workable short-term and long term policy solutions for policy makers; and open up a conversation around the role, limits and functioning of credit markets as well as debates around fairness and social justice. The findings of the report include: Government projections for the reduction of public debt are predicated on a high increase of personal debt; debt is a major issue for low income households, many of whom are already financially excluded in terms of access to affordable credit; and debt and financial exclusion among low income households generally, and among social housing tenants in particular, are likely to worsen in the wake of Government changes to the welfare system.

The general policy recommendations outlined include: government should examine whether income levels are adequate to avoid credit dependency; government should implement a universal right to a basic bank account; government should look to pass a similar legislation to the U.S Community Reinvestment Act, which would encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities; government should look again at giving regulators new powers to define and ban excessive interest rates in non-competitive sectors such as home credit and pawnbroking; and lenders in uncompetitive markets should pay a levy on their excessive profits every year until the market becomes competitive.

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