Thursday, 18 July 2013

Are Social Fund changes driving families towards payday lenders?

Here's an example of how changes to the way Social Fund money is doled out might be coinciding with some desperate families resorting to payday lenders and getting into financial trouble.

It's the issue raised today by the Children's Society.

A week ago I was speaking to a young mum, whom I can't name. She had been homeless and her council had put her in a flat.

Soon after, the washing machine broke down and she asked for a replacement.

But the local authority didn't have the budget for that. It suggested she tried to get a loan from the Social Fund - but of course, as the Children's Society has highlighted, that's not so easy any more.

Sure enough, the loan was refused. So the woman borrowed £50 from a payday lender, combined it with her total savings of £15 and bought a second-hand washing machine.

Maybe she should have gone to the launderette, because she couldn't pay back the £50.

The debt grew to £120 and at the latest count it had spiralled to £180.

In former years, the Social Fund was a sort of state alternative to loan sharks or payday lenders. More than two million people were given Crisis Loans from the Fund in 2011-12.

The commercial lenders charged thousands of per cent in interest. The Social Fund charged nothing - and if the borrower paid the money back, the money could be re-lent.

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