It is working with Fife and West Lothian Councils to set up a not-for-profit Community Development Financial Institution (CDFI) to provide affordable credit to people caught in the poverty trap.
Specialist lending company Five Lamps will open in Falkirk this summer offering cash at a substantially lower rate of interest than that charged by controversial high cost, short-term, payday loan firms.
The council is providing a £100,000 loan from its Fairer Falkirk Fund to get things moving. It will be repaid in full within five years.
Loans from Five Lamps will attract an interest rate of 89.9 per cent APR. Borrowing £100 and paying it back over 13 weeks will cost £113.48 compared with £147.60 which one well known for-profit, non-standard provider with a rate of 1575 per cent APR would take.
The plan was given cross-party support when the executive met on Tuesday.
Council leader Craig Martin said: “Tackling poverty is one of our biggest priorities. By creating this new service we are helping those who have the greatest difficulty obtaining affordable credit and are facing real financial problems every day made worse by payday lenders charging astronomical rates of interest knowing they will struggle to meet the repayments.
“Our support for CDFI means we can help everyone affected and break the cycle of poverty that causes so much misery.”
Affordable debt will be available
The contract with Five Lamps will offer personal loans of £300 on average made available to be repaid within weeks or months rather than years.
It is expected the CDFI shop – in a town centre location – will be open between 10am and 4pm Monday to Friday and between 9am and noon on Saturday. The service will be provided face-to-face, by telephone or via the internet.
Affordable loans, budgeting advice and help accessing other financial services including savings, income maximisation and debt management will be offered.
The aim is to offer a competitive, socially responsible alternative to non-standard lenders such as payday loans to Falkirk Council’s financially most vulnerable residents.