High-cost lenders ‘exploit NHS workers on pandemic frontline’

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Paula Land found herself in a spiral of debt she could not get out of. After lending an acquaintance money that was not paid back in 2016, the NHS nurse was forced to go to payday lenders so she could meet her bills.

But in order to repay the lenders, her salary was regularly drained, because she found herself paying back £900 for every £500 borrowed. By 2019, she was £20,000 in debt to a series of companies, and finally admitted to her family what was happening.

“The turning point was the stress – I couldn’t go on. I was more worried about my own sanity,” she says.

Land, 42, a nurse at Scarborough general hospital, had been working every shift she could in order to pay back the loans, leaving just the bare minimum of food on her shelves to feed her family.

She is far from alone. Thousands of NHS workers have been left heavily reliant on several high-cost loans charging interest of up to 1,333% because they are being excluded from more affordable mainstream options, a new report claims.

The study by researchers from the University of Edinburgh Business School examined the finances of almost 10,000 mainly lower-paid and younger NHS workers, and found that almost a third (30%) were using five or more loan providers, many of which were high-cost, such as payday and short-term loan firms.

The researchers says the findings “raise serious concerns about the financial resilience of a good proportion of these individuals,” and that the high level of the use of credit, loans and overdrafts that they had observed was “not sustainable”.

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It comes days after the City regulator said one in four adults in the UK had been left financially vulnerable as the fallout from Covid-19 drove more people into debt.

The Financial Conduct Authority has found that the number of people struggling with low financial resilience – defined as over-indebtedness, low savings levels or low or erratic earnings – increased by a third to 14.2 million in October, representing more than a quarter of the UK adult population. The new report on NHS staff was commissioned by credit firm Salad Projects, whose Salad Money website – which describes itself as a “for-profit social enterprise” – lends exclusively to NHS employees.

The company claims the report shows that high-cost lenders are “exploiting” NHS workers – including nurses on the frontline of the pandemic – by “trapping them into a cycle of unsustainable debt”.

The analysis was based on more than 15m banking transactions by 9,516 NHS workers who had applied to the website for a loan and made their data available.

The researchers acknowledged this was not a representative sample, as individuals applying for short-term loans were more likely to be experiencing financial problems already. The sample is skewed towards the lower NHS pay grades, and about three-quarters are under 45.

Many of the individuals appeared to have “low financial resilience” – in the case of 60%, there was evidence of bounced direct debits, which happens when a customer does not have sufficient funds in their bank account to cover the payment. About 26% displayed evidence of this in at least three of the last six months of data available.

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The report found that the use of credit and loan products was “extremely high,” with loans being used by about 91% of those surveyed. However, mainstream providers, such as high street banks, accounted for less than 10% of the total.

More than 100 other lenders were being used by the sample, with a “significant number” being high-cost, where the annual interest rate, or APR, could be 1,333% (such as short-term loan firm Lending Stream).

The researchers say there was considerable use of several loan providers: 62% were using between one and four firms, while 30% were using five or more, over an average of 18 months to two years. Roughly 5% used between 10 and 14 providers over the period.

Just over a third (36%) were credit card users, which is well below the 62% for the wider UK population.

The report adds: “There is further evidence to suggest that at least half of those surveyed would struggle to sustain an unexpected expenditure of £100 in a month without causing their bank account to go into overdraft, or further into overdraft.

“With only 4% showing evidence of payments into savings and investments, it may be safe to assume the majority of individuals do not have significant savings to fall back on.”

Alan Campbell, founder of Salad Money, says a significant number of NHS workers are clearly “struggling financially, and are being excluded from high street credit”.

However, his website has been criticised in some quarters for the interest rates on its own loans, which range from 34.9% APR for employees of partner NHS trusts, to 69.9% APR for employees of trusts not partnered with the website.

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Campbell told the Observer that their preference was to partner with trusts and sell at the 34.9% rate. “We are focusing on the most financially vulnerable people in the market and trying to deliver to them affordable credit,” he says.

For the staff who work for trusts that do not partner with the enterprise, the higher rate at 69.9% is one of the lowest of its type, he says, and he compared it with the highs of 1,300% from some lenders, leading to the impoverishment of many workers.

“The conclusions reached by the University of Edinburgh should rightly horrify anyone with a sincere and genuine interest in the financial and emotional wellbeing of the NHS workforce, particularly at this time when their roles are more vital than ever in battling the global pandemic,” says Campbell.

For Paula Land, the future is looking brighter. After revealing the extent of her problems to her husband, she wrote to all of her creditors and came to arrangements to settle the amounts she owed.

She is now paying back what she can afford, and hopes to be out of the remaining £5,000 of debt within six months.