CONSUMERS on low-incomes may often pay in excess of 1,000 per cent APR to gain access to credit facilities ? over 30 times more than the most expensive store card, says a report commissioned by the Co-operative Bank.
The report, Would You Credit it?, written by Paul Jones, of Liverpool John Moores University, and supported by Citizens Advice, calls on the Government to work with the financial services industry to develop financial education for consumers on low-incomes. More often than not, sky-high interest rates from alternative and unregulated lenders are the only options available to the financially excluded.
The report looks at the lack of information and credit options available in low-income communities and raises questions on the impact and extent of financial illiteracy within these areas.
It recommends that financial literacy training would help to prevent low-income consumers becoming trapped in expensive forms of borrowing.
Initiatives such as the "financial buddy" proposal piloted by the Huyton Money Advice and Budgeting Scheme (MABS) in Liverpool, are suggested as one way forward. The scheme involves community volunteers being trained on basic information about financial services and products to share this knowledge with low-income consumers.
Mr Jones said: "Research shows that many people on low incomes rely on word-of-mouth advice which can be inaccurate. By training people we can help eliminate the myths and unrealities that often exist.
"However, these people are not financial advisers, they just have a basic understanding of finance and be prepared to pass this on to others in informal surroundings."
Simon Williams, Director of Corporate Affairs at the Co-operative Bank said: "Having commissioned this report we must concentrate on its findings and recommendations. The industry needs to work with Government to improve financial literacy to help people manage their finances.
"It is unacceptable for consumers to be paying interest rates in excess of 1,000 per cent APR. Our research shows that people only seem to be concerned with the weekly cost of paying back the loan and make little reference to the APR, which underlines the need for education.
"Financial literacy training is only a small part of helping low-income consumers. People need access to more affordable credit alternatives such as credit unions. This report has convinced us to increase our efforts to further support and develop the credit union movement for the benefit of low-income groups."
Stephen Timms MP, Financial Secretary, officially launched the report. He said: "The Government is committed to tackling financial exclusion, for example, through the creation of the Financial Inclusion Taskforce and a £ 120 million Financial Inclusion Fund.
"We look forward to working with financial services providers such as the Co-operative Bank to help consumers take control of their own finances and improve their access to basic financial services."