Credit Companies Target Young Homeless People

Research published this week suggests that credit card companies and catalogue firms are targeting young, homeless people living in hostels and urging them to apply for credit.

The research, undertaken by the homelessness charity Centrepoint, found that nearly a quarter of all homeless people surveyed had been offered credit from credit card companies and other lenders, through unsolicited promotional literature sent directly to their hostels.

Anthony Lawton, chief executive of the charity, labeled the activity as 'unconscionable' and called for tougher regulation of the promotion of financial products to young people. The head of the Child Poverty Action Group, Kate Green, said that the targeting of the poorest young people was 'sick'.

Lenders have been found to be putting up credit limits without the request of the young customer and the letters sent out explaining the change failing to reach those who had moved on to other accommodation.

100 young people were questioned for the survey, with over two-thirds of these reporting that they had received promotional literature inviting them to apply for credit. Several of those interviewed said they had been able to spend beyond their means and now ended up with high interest repayments. Of the 100 people surveyed, 82% were in debt owing an average of £1,000 but some as much as £15,000.

The causes of this retreat into debt were found to be low incomes, problems and delays with benefits administration, poor financial literacy and lack of access to affordable credit. Stress and illness were seen to be the consequences of indebtedness, with a third of young people failing to cope with their existing debt.

Mail order catalogues are popular with younger people because they have less demanding credit criteria, but their products are typically more expensive than many stores on the high street. Forms of credit available to homeless young people have interest rates as high as 29%. Failing to repay these debts can damage a young person's credit rating, jeopardising their chances of owning their own home one day.

Mr Lawton called on the government to ensure that the lenders cannot put up credit limits without request. He also required the FSA (Financial Services Authority) to develop guidelines on the way products are marketed to young people.

An FSA spokeswoman said the authority had launched three pilot schemes and a website looking at ways to address financial education messages to young adults aged 16 to 25, including young homeless people and those on the margins of society.

The FSA does not regulate credit card companies, their activities are overseen by the Office of Fair Trading.