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The following blog was initially posted on LinkedIn in response to news of controls on the rent to own sector announced by the Financial Conduct Authority.  

It has been a busy week at Fair for You, with the news of the rent to own sector facing some curbs on elements of the credit solution that most penalise their customers. I am prompted to blog by some that question whether there is a need for this type of credit.

Maybe no surprise that in my opinion, there is never a need for penal high cost credit, so long as consumer led and better designed solutions are supported.

Fair for You was established and is successful as an alternative to rent to own in providing essential household items to lower income home makers having to use high cost credit. Bearing in mind our average loan is under £400, the estimated saving independently calculated is £527. As this weeks clampdown from the FCA has shown, that cost saving is not about the interest rate, but the design and structure of the entire credit solution.

Before we set up Fair for You, we conducted 2 years of research, exploring what was most needed from credit. Our current offering was designed in response to be highly visible and clear in the terms, with flexibility that accommodates income fluctuations as well as expenditure changes; supportive – delivered with a basic duty of care and affordable.

It is absolutely possible to remove material deprivation through a credit solution: based on feedback from customers who tell us their health and well-being has improved directly as a result of a FFY loan.

The cost to the consumer is based upon how far we can drive out the costs of loan deployment, collection and management of delinquency.

As a CIC owned by a charity we have no profit objective, that takes care of a huge amount of costs borne by customers of high cost credit alternatives.

There are no cash loans available, this is based entirely on significant feedback and our intention to ensure that all of the benefit of the credit we provide remains in the household, whilst empowering the home maker to shop with confidence knowing they can purchase new, quality items and access flexible credit that works for them.

We have built a highly effective bespoke lending solution that includes affordability and creditworthiness assessment based on our in depth knowledge and understanding of our demographic built over 10 years of working in this sector.

We choose good partners – initially Whirlpool, who have committed to ensuring that cost effective purchases can be installed within 3 days, and with free recycling of old products and free delivery across the UK with 1 hour delivery slots including Sundays. That addresses so many of the concerns we identified, from rural poverty, & having to take time off work in households with very fine margins and very high anxiety and reliance on the product.

We have extended our offering consistently, most recently welcoming Dunelm ensuring beds and sofas right across the UK at affordable prices can be delivered. The huge difference on the education and behaviour of a child that wants to go to bed at night because they have a nice bed of their own is feedback that we receive regularly, and never fails to touch all of us.

Essentially this also reduces the cost to the consumer, as we take a commission on every product sold that offsets the interest income we require from every loan we provide.

Most challenging for all credit providers in this demographic, is the need to collect effectively. Aided by the enhancements in payment technology and communications technology driven by the utility sector, again we have found we can drive out substantial costs in delivering, managing and collecting small loans. & perhaps this is the area, I am most proud of the progress we have made in showing that you can collect effectively whilst maintaining support to consumers through difficult situations.

As we would expect, we encounter customers that struggle to maintain payments. Our policy is not to add substantial fees or interest but to try to keep customers on a payment plan that allows them to repay the loan even if its over a longer period. We have no late fees at all, and most customers will switch a plan, to continue paying.

Most of the time, that level of support works. We do not sell on debts, or use bailiffs, so one major step forwards has been the increasing efficiency of the Eligible Loan Deduction Scheme operated by the DWP, which allows us to recover a loan at very low level from customers benefits directly where payments stop completely. That is the lowest cost and most effective solution for affordable credit to be extended in the UK.

It has taken 3 years to develop a solution after 2 years of research – however it is absolutely clear we can reduce material poverty through deploying better designed credit, right across the UK even with very small loans, which are life changing to our customers.

We share widely our research and our experience in having created the first national alternative to rent to own in the UK. We are now working to ensure that Fair for You is available as widely as possible.

We welcome any support to our mission to alleviate material poverty and support low income home makers to avoid having to resort to any high cost credit solution.

Follow Fair for You on Twitter.

Barrow Cadbury Trust supports Fair for You through its social investment programme.  High cost credit is one of the key themes of the Fair by Design movement which the Trust is hosting.  Follow Fair by Design on Twitter

Angela Clements, CEO & Founder of Fair for You blogs about the positive impact that Fair for You’s ethical credit for home items has had on thousands of low income households

In 2014, in the world of unsecured personal credit, there were few offering credit to those people on low incomes, and who have to take credit and pay it back each week or fortnight; people who can’t get credit from their banks or building society.

Most of those providers charged what most of us would consider to be high interest rates, high fees and inflated prices for the items, which would keep people from ever being able to escape their clutches.

There had to be a better way. So in August 2014, we got funding to get an independent company to run a series of consumer focus groups. They asked users of this type of credit when they used it, why they used it, what they used it for, and how they felt about it.

From what we heard, Fair for You was born. Two years later, we’ve capital and loan finance from four social funders, are fully authorised as a lender by the FCA, and have been trading since December 2015.

Our second Social Impact report has just being released and makes surprising reading.

For instance, we heard that an average loan of just £300 can directly improve customers’ ability to pay their rent (over half of people surveyed said this was the case, rising to two-thirds of lone parents). And that a loan of this size can directly improve the health and wellbeing of our customer’s children’s (one third felt this was the case – rising to 51% of lone parents).

Isn’t that amazing, given the comparatively small size of the loan?

However, a cursory view of Trustpilot will show you that among the 300 people who have so far posted reviews, pricing is only part of the reason that Fair for You has such an impact. It is the whole design of the solution that works for them.

Why? Because, without being too technical about it, we’ve combined structured credit with some of the key benefits of unstructured credit.

Our loans are for items for the home – we don’t do cash loans – and the customer chooses the item they want from our ‘digital high street’. The loan is then structured to purchase that item.

It’s also structured because the loan is clear to the customer, structured repayments on a schedule. They agree to pay an amount of their choosing, over a period they choose – weekly, monthly, fortnightly or four weekly, over any period from 12 weeks to 24 months.

So, if the customer wants to pay £10 a week over 37 weeks, then that’s the loan that we agree; and they are kept up-to-date on their repayments, via text, posted statements and monthly on-line updates.

The benefits of flexibility are that the customer can overpay at any time, and many customers choose to do so. For some it allows them to clear the credit earlier, and for others it allows themselves to miss a payment when facing a difficult week. All clearly get the fact that they don’t pay so much interest if they overpay.

However, the biggest difference is in the assessment of credit. We recognise that many households have low and fluctuating income, such as zero-hours contracts, so we set low repayments and allowing overpayment for when the money’s there. We’re also understanding of past credit problems, so we look instead at a customer’s management of credit over recent years.

It will be interesting to monitor the impact on the financial wellbeing of the households using Fair for You. Our Social Impact report estimates that within 3 years, the majority of customers having switched from using high cost credit regularly to using Fair for You, will no longer have a Poverty Premium in their household.

In the past few years considerable funding has been spent on financial education. For a fraction of this cost, the long term benefit to the households of having access to good financial products may far outweigh being continually taught how to avoid the most aggressive mutations of high cost credit providers.

Better product design, delivered in a more socially responsible manner, may well provide answers in a post-banking crisis world that has seen our society so polarised by their exposure to poverty.