Tom Levitt tells how a bid to disrupt the world of high-cost credit has prevented a broken washing machine becoming a disaster for many thousands of households.
The tools of business can, and should, be used for the public good. Here’s how it works.
You’re a single mum with two school-age kids, a part-time job and you’re on Universal Credit. Putting to one side the trials and tribulations of the current explosion of living costs, in normal times one of the worst things that can happen is that your washing machine breaks down. Using the launderette (if there is one) is inconvenient and will increase your costs. You have neither the necessary £300 in savings, nor a credit card to pay for a new washer. If you choose a washing machine for that price at the local retailer they will refuse you credit, so you know not to ask.
Something like this is normal life for more than ten million people in Britain today. One in six of us could not readily replace that washing machine and many are forced into the arms of high-interest lenders, legal or otherwise, every day.
There used to be a household goods store called Brighthouse… the company repossessed one in every three washing machines it sold, reconditioned them, then sold them again.
There used to be a household goods store called Brighthouse. It would sell you that washer for £10 a week, including warranty, delivery, insurance, the works. What a bargain. But £10 a week for three years is £1,500 – five times the ticket price. And Brighthouse was one of the cheaper options available. Little wonder that the company repossessed one in every three washing machines it sold, reconditioned them, then sold them again. All perfectly legal.
And then ‘Fair for You’ came along.
I was approached by a former banker who was convinced that finance could work for low-income families, but she needed to have a vehicle that was (incorrectly) described as not-for-profit – a purpose-led social enterprise.
She was a stranger to that world, but I was immersed in it, committed to using the tools of business as a force for good. Using loans from charitable foundations, together we set up a company owned by a charity, an online loan provider for those larger household essentials for people who could not borrow at fair prices from elsewhere. Under Fair for You that washing machine would be £7 a week for one year – £1,100 less for the customer than the Brighthouse deal.
At five years old, Fair for You is now mature. In 2021 it issued 40,000 loans to buy household goods, typically of £350 – a figure which conventional financiers told us the company could not sustain. But it has. Fair for You scores 4.9 out of 5 on Trustpilot, making it one of the most trusted finance companies in Britain. Its social impact is staggering. It doesn’t automatically impose penalties for late payment (they are counterproductive) and its growth plans are on target.
Fair for You loans are not expensive. Although its customers still live in poverty, they cope better.
Fair for You customers talk of reduced stress, improved mental health, an enhanced feeling of “being in control”. They know that, compared to other loan companies serving their demographic, Fair for You loans are not expensive. Although its customers still live in poverty, they cope better. Those with good payment records are given access to a wider range of goods and other incentives.
Brighthouse was not the only high-cost loan company that failed to survive the past five years. That period has brought pandemic, tighter regulation of the high-cost credit market and latterly the end of the temporary Universal Credit uplift.
The current raised level of inflation will test many loan companies further, and there has been a recent rise in illegal lending – at very high interest rates. Such operations may involve violence and threat for borrowers in difficulty. Fair for You is confident that it can continue to serve its customers. It has good relationships with its investors and others such as its long-term delivery partner and white goods provider, Whirlpool.
One investor is Fair for All Finance, a body set up by Parliament to distribute funds from dormant bank and other accounts. In a pleasing twist, I sat as a Member of Parliament on the committee that introduced that dormant accounts legislation, over a decade ago.
A recent innovation is a partnership with Iceland supermarkets: a Food Club. Low-income families find school holidays difficult because the cost of having the kids at home for weeks on end is daunting and budgeting on a pittance is a challenge. Fair for You can make a loan of up to £75 (loaded onto a card they can only use at Iceland) up to three times a year, with a maximum balance of £100. Customers can repay as quickly as they like, to reduce interest costs. Again, the social impact of this is proving massive: customers report the thrill of buying fresh food, the satisfaction of no longer needing to use a food bank. Again, they are put in control. The Food Club is being rolled out across the UK during 2022 and has been nominated for a Global Good Award
It’s a myth that people on low incomes suffer because they cannot manage money well.
Unfortunately, we can’t help everyone. We turn down most applicants, often referring them to sources of advice or charitable aid. We find it difficult to lend to younger people with limited or no credit records, or to those with a record of defaulting on loans, though we are constantly trying to improve our lending algorithms. Some of our customers can’t keep up payments, of course, despite all the tolerance and assistance Fair for You can give them. That risk is built into its lending model. An added benefit of Fair for You’s service is that it helps customers to improve their credit records, which makes it easier for them to access the world of conventional credit in future.
It’s a myth that people on low incomes suffer because they cannot manage money well. Fair for You’s customers – overwhelmingly women, largely parents, very often in work but on low pay – manage their money very well, they just don’t have enough of it. Fair for You gives them access not just to credit but to money and to dignity.