The High Cost Loan Scandal No One is Talking About
Description
“The only gig in town came with 60% interest, because we were considered subprime lending. It meant that every payment of £15,000 included £9,000 interest.” Business owner David, who subsequently saved more than £80,000 in interest a year by refinancing with a CDFI.
When it comes to high-cost credit, most of us think of personal borrowing and payday loans. But the quote above comes from a business owner. More than a decade after the Financial Conduct Authority (FCA) took over regulating consumer lending and introduced the cap on payday loans, there’s a new high-cost loan story unfolding. Up to one in four loan enquiries to Community Development Finance Institutions (CDFIs) now come from small businesses seeking to escape unsustainable high-cost loans. It rarely makes headlines, but it is leaving some firms fighting to survive.
In this episode Eleanor Russell, Policy and Research Manager at Responsible Finance, describes the high-cost business loans crisis.
A community development finance institution (CDFI), SWIG Finance, was able to refinance the business owner quoted above, saving his firm £80,000 to £90,000 of interest a year.
Eleanor has more jaw-dropping statistics and describes what banks and government can do so that more businesses become aware of ethical, responsible lending options through CDFIs, earlier.
United States
