26 September 2005 - New plans to fight off loan sharks through affordable credit
David Blunkett, Secretary of State for Work and Pensions, today unveiled a new package of measures to help people build assets and access affordable credit, as part of ending the scourge of the loan shark.
As part of the Government’s financial inclusion strategy, David Blunkett announced £36 million will be allocated to the Growth Fund to support Credit Unions, Community Development Finance Institutions and other third sector lenders.
The Growth Fund aims to provide the opportunity for people who would otherwise be driven into the hands of loan sharks to have access to loans at affordable rates. The £36 million allocated will result in more affordable credit becoming available to tens of thousands of people.
In addition, £210m is being provided to the Social Fund budgetary loan scheme over the next three years, which will lift the overall budget to just under £800m so that loans will be increased, repayment periods will be extended, repayment rates reduced and administration simplified.
David Blunkett said:
“Financial Inclusion programmes will be crucial to overcoming child and family poverty and I’m committed to engaging with this inclusion agenda in imaginative new ways.
“From next spring, the benefits system will ensure that the threshold above which savings are counted will be doubled for people of working age.
“For those seeking help through the Social Fund, an additional £210m means loans will be increased, repayment periods will be extended, repayment rates reduced, and administration simplified.
“But the Chancellor and I are looking to go much further. We need to ensure that we build long-term savings. To engage people in holding an account, in building up credit, in seeing off the loan sharks. That is why we will review top to bottom the operation of the Social Fund budgetary loans and grants. Our task is to help people build their way out of dependence, out of borrowing and into self-reliance.
“But as well as greater support for self-reliance, there is clearly a need for immediate new cash. I can announce today that the £36m allocated to the Growth Fund to support Credit Unions and other third sector lenders will improve access to affordable credit.”
Notes for Editors
- The £36 million Growth Fund, which is a joint HM Treasury/DWP initiative, has been made available as part of the Financial Inclusion fund, announced in the Pre Budget Report by the Chancellor in December 2004.
- DWP is now working with HM Treasury, the Financial Services Authority (FSA) and other external stakeholders to develop a detailed operating model in time for Credit Unions and CDFIs to bid to deliver the service in areas of high financial exclusion from the middle of 2006.
- These not-for-profit (mutual) organisations are experienced in the provision of their holistic service – often combining access to affordable loans, with relevant money and debt advice, and support with opening basic bank accounts where appropriate.
- There will be criteria against which these financial institutions may bid for money from the Growth Fund to increase their capacity to make loans as well as funds to deliver the service.
- Changes to the Social Fund from April 2006 will reduce the highest loan repayment rates, extend the loan repayment period, make changes to the way in which existing debt is treated for future loans and the introduction of a simple formula for calculating the maximum amount an applicant can borrow. Further details of the changes are in the Secretary of State’s Annual Report available on the DWP website.
- The capital threshold and upper capital limits for claiming Income Support and Income based Jobseekers Allowance will be doubled from April 2006. The lower limit for claiming IS, JSA(IB), Housing Benefit and Council Tax Benefit will be raised from £3000 to £6000 and the upper limit for IS and JSA(IB) from £8,000 to £16,000.
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