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According to the BBC recent news, the Center for Social Justice (CSJ) found out through its research that 315,000 UK citizens are too poor to go bankrupt.

The CSJ Report Outlines

Being almost noncompetitive, the market of financial services leads people into a “problem debt”. The situation becomes even more complicated due to the cost of declaring bankruptcy, which is £525. Such fee prevents people from this step, the report says.

According to the Center for Social Justice, our government should provide assistance in funding “community banks” that can provide with cheaper small personal loans to consolidate debt to the citizens. The Center also considers employers responsible for helping workers to save means.

The report mentions that about 50% of people with unmanageable debt are sure it brought harm to their health. Such obligations keep people poor and lead others into a debt trap too. At present more than a million of consumers use the services of credit unions, the total amount of money borrowed is around £600m, still the current regulations prevent the credit unions from being able to assist the poorest, who could benefit most from them.

‘Community Banks’ as an Alternative to Loan Sharks

The think tank considers the government should make the rules of membership simpler for the credit unions, which are most successful. Additionally such measures as removing interest rates caps on small loans and permission to generate income on members’ invested deposits should also bring certain benefit.

The new type of lenders, called at present ‘community banks’ will then be able to offer the UK consumers loans similar to short term loans from payday lenders, but at cheaper rates and on more affordable terms.

The report presents capping payday loan rates as a mistake, because introducing the regulations could force many of individuals to turn to loan sharks. Some weeks ago the Financial Conduct Authority said the rates on payday loans should be limited to 0.8% a day, which means every borrowed £100 would cost £24 a month.

The Centre for Social Justice was founded in 2004 by Duncan Smith, Work and Pensions Secretary. The report was presented by Chris Pond, former Labour minister.