Barclays fishes in loan-shark waters

Barclays Bank is planning an attack on loan sharks by linking with Cattles, the door-to-door lender, to target "near-prime" borrowers. These are people who may have had county court judgments against them, or may have had problems repaying loans, but are in employment and have a universal bank account with Barclays. It also includes recent immigrants who have not had the chance to build a credit record.

Frédéric Nze, Barclays' director of consumer finance, said: "This is a nine-month pilot, starting in early March. We want to learn from it then decide what to do, with the objective of really impacting that end of the market."

If a holder of a Barclays bank account goes into a branch for a loan, and they are not eligible on standard terms, they will be referred to Welcome Financial Services, a Cattles subsidiary. Barclays is putting up between £50m and £100m to make 2,000 to 5,000 loans. Cattles will provide processing, administration and monitoring services, and both sides pay for their own costs.

"Cattles has the expertise we don't," Mr Nze said. "Until now, if we turn someone down for a loan they will go to Cattles or street lenders. But Cattles has found that once someone has repaid a loan on agreed terms it also loses the customer because they now have a credit record to take to the banks and qualify for cheaper loans. So this is good for both of us."

Barclays has set a range of interest rates for the loans, from 20.9 per cent to 35.9 per cent depending on how it goes, but is likely to start at 29.9. Mr Nze stressed that this reflected the cost of servicing these loans rather than the credit risk.

He said: "They need the money and are not sensitive to price. Others might charge them 60 per cent. But we guarantee that if they perform properly we will move them on to a standard Barclayloan at 10 per cent or less."

David Harker, chief executive of the National Association of Citizens' Advice Bureaux, said: "We are in favour of reputable financial services companies trying to meet the needs of those who want some form of credit but would not meet normal criteria. Obviously, one is concerned about the interest rate, but they gave us assurances they are keen to migrate borrowers to the normal rate."