James Moore: Cheaper options would help people quit loans habit

Those who defend companies such as Provident Financial make two points: that their clients are broadly satisfied with their service (Provident puts the figure at 95 per cent), and that the alternatives are dire. By the latter, they mean the loan shark who will break your legs when you can't pay up, rather than just your heart when the bailiffs knock on the door.

As for the former, it may indeed be true, although you have to take companies' customer satisfaction figures with a pinch of salt. Even if it is true, it's like those food products that boast they are 95 per cent fat free – which means they have 5 per cent fat, and nutritionists might tell you that is quite a lot. Provident's 5 per cent equates to more than 100,000 of some of the poorest and most vulnerable people in society (it has more than 2 million customers).

But that's still not the issue. The problem with Provident is that its clients don't tend to shop around to see if there are cheaper options. They typically have regular personal contact with its agents and, once they have become customers, they remain customers. Such is Provident's market share that very often there are few alternatives available anyway.

And so money goes out of the already limited budgets of the poor into Provident's coffers, to pay the dizzying salaries of its executives, and dividends that will help to provide for the pensions of more fortunate members of society.

Sometimes people do need credit. Credit that is hard to find. But the high-cost credit which Provident provides can look suspiciously like a drug. If it is the only game in town, shouldn't we as a society create something better than loans whose equivalent annual interest rates can easily top 400 per cent?

It can be done. The National Housing Federation's My Home Finance scheme offers interest rates that are a fraction of those charged by Provident. They're not cheap: the scheme has to pay for itself and lending to low-income groups can be risky and expensive, but the rates are a mere fraction of those charged by lenders like Provident. However, such a scheme needs funding if it is to go beyond its trial area in the West Midlands. The Government has just begun the process of selling off Northern Rock. This would be an excellent use of some of the proceeds.