High-cost loans leave 40,000 in poverty

Prof Paul Mosley of the University’s Department of Economics and lecturer Dr Pamela Lenton have published a book which investigates the lives of those who do not have access to high street bank deals.

Prof Mosley, a director of Sheffield Credit Union and Moneyline Yorkshire, said many people excluded from High Street banks did not use alternatives to high-cost lenders like credit unions.

He added: “In the Sheffield area, about 40,000 people are trapped in a spiral of debt and poverty because they cannot borrow from high street banks.

“They are forced into much more expensive ways of borrowing simply to afford day-to-day necessities. Legitimate ‘home credit’ companies such as National Provident charge up to 500 per cent APR.

“Payday loan companies such as Quick Quid and Wonga charge even more, often well into the thousands. Anyone paying those rates will find it difficult to ever escape from the debt trap.”

Focussing on the period 2007 to 2009, during which the UK went into a global recession, the book suggests this summer’s riots could have been avoided through better finance for poorer people.

“Loans to people in poverty could have helped them set up self-employed businesses - which would have put them on the side of those who were trying to protect their businesses, rather than those who were rioting,” added Professor Mosley.

“Also, if given to clusters of people rather than individuals, loans could promote cohesion within inner-city communities, which would also deter rioting.”

The book Financial Exclusion and the Poverty Trap, Overcoming Deprivation in the Inner City, is available from publisher Routledge.