2014 update. Small Loan Scheme. Introduction

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1 Small Loan Scheme 1. Purpose Introduction The Welfare Reform Act 2012 abolishes the Discretionary Social Fund. From April 2013 funding for Crisis Loans (CLs) and Community Care Grants (CCGs) will be devolved to top tier or unitary authorities. There is no new statutory duty on Local Authorities (LAs) to recreate CCGs and CLs but there is a strong expectation from Government that LAs will implement locally appropriate solutions. Help from the Local Discretionary Hardship Support Scheme (DHSS) will be focused on supporting the most vulnerable citizens living in Nottingham and eligibility criteria has been developed to ensure this. To access the local DHSS citizens must be aged 16 or over, demonstrate that they are currently resident in Nottingham and that they have a local connection to the City. As part of the Council s response to hardship in the City a Small Loan Scheme has been developed in order to help those who are on a low income and who are: currently experiencing financial vulnerability/difficulty or are on the brink of experiencing a period of financial vulnerability/difficulty or who are in a crisis with no other means of support. Since 1 st April 2013 the City Council has closely monitored the pilot Emergency Loan Scheme (ELS) in order to ensure that the scheme is meeting the appropriate needs of Citizens. A recent review of the pilot ELS has highlighted that there is a need to amend the scheme so that it is more accessible to citizens in need. 1.1 The Small Loan scheme seeks to provide affordable loans to people based on need and ability to repay the loan. It is intended to help financially vulnerable people in Nottingham who fulfil all eligibility criteria (listed below in section 3). Citizens may need access to a small loan because they: do not directly meet the eligibility criteria for the Council s main Hardship Support Scheme and, have no other means of support available or, are experiencing a period of financial vulnerability or difficulty or, are in crisis following an emergency or disaster

2 2. Operation 2.1 The Council does not have the appropriate environment and resources to operate this facility in-house and have a service level agreement with Nottingham Credit Union to deliver this loan scheme. The Credit Union uses a model of socially responsible lending to develop and as such this scheme offers loans which are affordable to people on low incomes. In using the Credit Union it is envisaged that the scheme will provide an alternative for Citizens who may ordinarily not have access to mainstream lending and may choose to access other high street lending such as high interest payday lenders. 2.2 The Credit Union has experience of administering and recovering loans from more financially vulnerable citizens i.e. those without bank accounts, low credit ratings or no credit history 2.3 Loans will be managed and recovered during the year to stay within the funding amount available for the scheme. 2.4 The financial risk remains with the City Council. All losses in collection will fall on the funding allocated in the year 2013/14 and the requirement for recipients to repay loans means that this funding can be reused for future small loan provision. This provides a degree of financial sustainability for the Small Loan Scheme. 3. Eligibility 3.1 In order to access a Small Loan, citizens can either apply directly to the Credit Union or can be referred to the scheme by the Council s Emergency Hardship Team. Citizens will have to demonstrate that they: Are over the age of 18 years old Can demonstrate that they are currently resident in Nottingham and can demonstrate a clear connection with Nottingham by having been a permanent resident for 3 of the last 5 years as well as demonstrating a recent connection with Nottingham by having lived in Nottingham for 6 of the last 12 months. (For variations to these eligibility criteria, please refer to section 4.2 of the Discretionary Emergency Hardship Scheme) Are on a low income Are experiencing or are on the brink of experiencing a period of financial vulnerability or difficulty Are in a crisis with no other means of support 3.2 The Council expects to receive applications in unusual or extreme circumstances, where additional help will have a significant effect in alleviating financial hardship for vulnerable citizens. Applicants will be asked to provide evidence of need to show that they have no other

3 available income and that the need(s) cannot be met from another source. 3.3 Nottingham Credit Union will apply further restrictions to eligibility for a Small Loan in line with Nottingham Credit Union loan application process. Small Loans will not be available where: Citizens have an existing debt or arrears with NCU (they must start to repay their existing loan before being awarded an Emergency / Small Loan). Citizens have been removed from NCU membership. 3.4 A customer will be restricted to one Small Loan in any 12 month period. However, if the customer demonstrates that they are responsible borrowers as a consequence of the first loan and they are active members of Nottingham Credit Union (NCU), then they may be eligible to access other Credit Union products at the discretion of Nottingham Credit Union. 4. Applications 4.1 The Credit Union is a co-operative and so membership is a requirement in order to access their products including the Small Loans. Nottingham City Council as part of this scheme, will provide the small membership fee for each citizen accepted for a loan. 4.2 The Emergency Hardship Team can submit applications for Small Loans to NCU on behalf of a citizen. Paper applications will be completed and ed to NCU. A web application is in development by NCU and will eventually replace paper applications. Citizens may also contact the Credit Union directly to apply for a Small Loan. 4.3 Applicants must also provide acceptable proof of identity documents to NCU as part of the application process and before a small loan is released. The credit union is required to show evidence that they have checked the following details: Full name Address Date of Birth 4.4 Citizens will need to produce 2 documents, which include their full name and either their home address or their date of birth, this could be from the following items. One of these documents must be issued by a government department. These could include: Valid Passport Valid photo card driving licence (full or provisional) Firearms certificate or shotgun licence Full UK Driving Licence, old style paper form.

4 Benefits Agency / DWP / Employment Service Documents Inland Revenue Documents Certificate of British Nationality Benefit Payment Book Current Utility Bill (not mobile phone) Bank, Building Society, Mortgage, Credit Union or Credit Card Statement Council Tax Bill or other Local Authority Documents Court Correspondence We must see the original document 4.5 Citizens making repeat applications to the Small Loan Scheme will be signposted to relevant advice services where appropriate, or to alternative products that may be considered through the credit union. 4.6 Information provided may be shared with other council departments and Government agencies in order to check information protect public funds and to identify any additional help and support that might be available. If an applicant has provided insufficient information, an opportunity may be granted to correct any errors or supply additional information, if deemed reasonable to do so. 4.7 Once an application has been submitted to Nottingham Credit Union a 24 hour turnaround period is required to set up the account and transfer the Loan. The applicant must supply all relevant information for the application to be assessed to meet this deadline, including an up to date bank statement and proof of income. 5. Awards 5.1 The decision to award a small loan will rest with Nottingham Credit Union, who will be required to manage the loan process and the availability of funds. 5.2 The amount of loan awarded will be determined by the NCU and will be based on information submitted as part of the application process. The decision will take account of the applicant s household, circumstances (i.e. single person household or family with children) and need and their ability to repay the loan within a 12 month period. 5.3 When determining loan amounts for different types of household, NCU will refer to the costings for items under the Household Support element of the DEHS where this is relevant. 5.4 The minimum Small Loan amount will be set at The maximum Small Loan amount will not exceed 500 and will not exceed the value of the need it is required to meet. Evidence of need must be provided by the customer before a loan is awarded, see section 3.2 above on evidence of need. The amount issued will be

5 based on individual need and ability to repay the loan amount within a 12 month period. Nottingham Credit Union will determine the ability of a citizen to repay a loan. 6. Payment 6.1 Before an Small Loan is released the customer must: visit a NCU branch to sign a loan agreement in person - alternative arrangements can be made for citizens with disabilities. agree to the repayment schedule set up a direct debit or standing order of wages/benefits to NCU 6.2 Payments will be in the form of a bank transfer into the customer s bank account. However in certain circumstances we may offer flexibility of the provision of cash. 6.3 Citizens will be contacted by NCU when their Loan is ready for either bank transfer or collection. NCU offices opening times are 9am 5pm. Loans can also be completed at Bulwell and on Saturdays at Maid Marian Way, although no bank transfers can be completed at weekends. 7. Repayment of Loan 7.1 Small Loans must be repaid in full within a period of 12 months. 7.2 Citizens must agree to the repayment schedule and will be required to set up a standing order or direct debit of wages/benefits to NCU before the Loan is released, in order that the loan is repaid within the 12 month period. 7.3 NCU will only accept automated payments. Cash payments will only accepted in very exceptional circumstances. 7.4 Additional or over-payments can be made at any time. If the member does not cancel the standing order or direct debit at the end of the term the funds received will go into savings. 8. Credit Control and Defaults 8.1 Citizens who miss payments will be contacted by phone, text, or letter as appropriate. Personal visits can also be arranged to discuss rearranging payments however the customer will incur a cost per visit which is added to the loan amount. NCU can decide whether to take further action in order to recover debts. This action will be proportionate to the amount of the outstanding debt and will take account of the financial circumstances of the customer. NCC will be notified of failed loans to note against the customer. This will ensure that citizens with a

6 history of default are not allowed to access the DEHS scheme in the future. 8.2 NCU share information with Experian so any defaults on Small Loans will be reported on the credit history of the customer. 9. Review of decision 9.1 Nottingham Credit Union can decide to decline a Small Loan. Where a Small Loan is declined, the customer will be advised of the reason which will fall under the following headings: The Small Loan is not affordable. The customer has no disclosed their full financial situation. The customer has been ejected from membership of the credit union The customer has a current Debt Management Plan which prohibits any further borrowing. The customer has no proof of income. 9.2 NCU will only review a declined loan where the applicant can supply new information. 9.3 As a regulated company, NCU do have a complaints procedure. 10. Monitoring 10.1 The DWP has issued settlement figures to local authorities for the first two years of the scheme. Nottingham City Council will receive 1.8m per annum for 2013/14 and 2014/15. Year one of the Small Loan Scheme will be funded from Nottingham s allocation for 2013/14. Approval to use the allocation of funding for the Scheme was obtained at Executive Board on 20 th November In addition NCC will receive 386k in 2013/14 and 353k in 2014/15 for administration costs. There will also be a one-off set-up allowance of 18k in 2013/ NCU will receive an amount of capital to operate the Small Loans. This will be maintained at an appropriate level to be agreed by NCC and NCU that will enable the ELS to operate efficiently Loans will be managed during the year to stay within the funding amount available for the scheme. The NCU spend against their capital will be monitored on a monthly basis to ensure financial support throughout the year and spend will also be reviewed quarterly.