60,000 people in Leeds could be in the grip of debt to legal high-cost lenders charging annual rates as high as 4,214 per cent.
Figures indicate nationally the high cost lending market is worth £7.5bn, with an estimated 5m people in the UK accessing high-cost credit of which 2m use payday lenders. A council report says if the national picture is reflected in Leeds, up to 60,000 people use high interest lenders, including 22,500 who take out payday loans.
Annual percentage rates (APR) for payday loans can vary between 433 and 4,214 per cent, according to the report, which lists over 60 credit shops operating in Leeds.
It says: “In addition to the social cost, this market represents a potentially huge impact on the Leeds economy. If everyone using high-cost credit in Leeds had access to affordable sources this could save families up to £70m a year.”
But it acknowledges that a quarter of the customers of high-cost loan firms cannot access other forms of mainstream credit.
In an effort to try to tackle the problem, the council is continuing to support and promote the work of the Leeds City Credit Union (LCCU).
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Leeds East North East Homes – one of the organisations that manages housing on behalf of the council – has funded a credit union staff member to work with tenants on budgeting and financial management.
A credit union-council working group is also looking into ways financially struggling households can be helped.
The Leeds Community Development Finance Institution (CDFI) – a social enterprise able to provide personal lending – is due to be launched in the autumn and will work alongside the credit union.
LCCU currently rejects £100,000-£150,000 of high risk loan applications per month because it has an interest cap of 26.8 per cent APR.
CDFIs have no such restrictions and they typically charge an APR of between 40 per cent and 60 per cent.
The report, to be discussed by the executive board next month, says: “Although this interest rate is relatively high, it is still significantly better than the rates charged by money shops and similar.”
Coun Keith Wakefield, council leader, said the rates charged by some companies were far too high and added: “There should be a cap on the amount of interest charged for the most vulnerable people.”