Fair for You: better lending to lower-paid households

Rent-to-own stores feature on many high streets, with windows that sparkle with giant TVs, PlayStations, and leather corner suites. The glamorous lifestyle beckons, at seemingly affordable rates.

But serious issues were thrown up when the all-party parliamentary group on debt and personal finance led an enquiry into the rent-to-own sector in February 2015.

It found that APRs of up to 94.7% and charges for compulsory cover, offering nothing more than statutory protection, often doubled the cost of essential household goods. Many customers – 50% according to the Financial Conduct Authority (FCA) – get into difficulties on their rent-to-own commitments. And 22% of these customers in arrears have had goods accepted back or repossessed.

Add to this the lack of transparency in terminology, and heavy-handed tactics both in up-selling and repossessions, and you get a sector that did not appear to be delivering in the customer’s interest. And as the goods are rental, it may be several years and sometimes thousands of pounds before they belong to you – a fact that is not made prominent.

Fair for You

In mid-2014 Angela Clements, the chief executive of a thriving credit union in central Birmingham, was tired of meeting desperate, struggling people on a daily basis, seeking loans and often finding themselves in the clutches of right-to-own and payday operators.

She began on the long and lonely path of setting up a new organisation looking to change the financial landscape for the lower-paid. It seemed criminal to her that those with the least were being forced to pay the most. Why should someone whose washing machine broke down be trapped into paying inflated prices, simply because they worked irregular hours, or cared for a disabled family member, and couldn’t access regular store credit?

In November 2015, after almost 18 months of funding rounds, setbacks and focus groups with exactly the kind of people Clements was looking to help, the business received its full FCA lending licence, and Fair for You was launched.

Established as a social enterprise, wholly owned by a charity, the small team began trading quietly at first while stress-testing the systems and concept.

Unlike the right-to-own sector, Fair for You’s customers are provided with credit to enable them to buy goods on the virtual high street. Crucially, this means that the customers own the items outright from day one.

Initially brand new white goods were available from the Whirlpool group (including Hotpoint and Indesit) at real-time high street prices – often lower than many on- and off-line retailers – and beds, cots and baby items are added in early April.

All items come with no compulsory insurances. Free delivery within three days is included (since the team recognised the convenience in specifying delivery slots), and removal of the old item is also available, free for kitchen appliances and at low cost if it’s a mattress – great if you don’t have access to a car.

Once items are chosen, a telephone discussion with lending managers establishes customers’ eligibility for loans, based more on affordability and propensity to repay. Those refused loans are signposted to organisations such as Turn2Us, to ensure applicants are receiving all financial help available.

In March 2016, the first independent social impact report was commissioned from the Centre for Responsible Credit. At stage one, the reporting is mainly around financial wellbeing – the money kept in a household to use on other things – and the self-respect given back to people by being treated with dignity.

At the next stage, this reporting is likely to include longer-term benefits to households in accessing better, more efficient food storage, clean clothes, and better sleep, and the knock-on effects this has on cohesive, healthier family lifestyles and ability to pay essential bills and rent.

The report justifies the need for ethical, not-for-profit operators in this space, looking to improve the outlook for Britain’s lower-paid families. It also contextualises the APR necessary to keep the business running, which some would see as high at 42.6%, as comparable to many credit union loans and artificially skewed due to the shorter, less restrictive loan term lengths.

But it recognises getting there has been a struggle. Fair for You will need assistance in reaching those who can benefit, to keep the loans flowing without the multi-million marketing budget of those it seeks to challenge.

The launch of the report in April will be followed by quarterly updates, which will give a longer-term picture of better lending to lower-paid households.

As Tom Levitt, former Labour MP for High Peak and chair of the charity, says, “We’re here to help – and we’re already making a difference.”

The original blog was paid for and provided by Lloyds Banking Group, one of the sponsor s of the Public Leaders Network.

Barrow Cadbury Trust supports Fair for You through a social investment.