It is normal practice when a Government Department proposes to undertake a contingent liability in excess of £300,000 and for which there is no statutory authority, for the Minister concerned to present a departmental minute to Parliament, giving particulars of the liability created and explaining the circumstances.
I wish to notify Parliament of a contingent liability that has been created by the Government from the introduction of the pilot No-Interest Loans Scheme. The pilot No-Interest Loans Scheme was announced at the Budget on 3 March 2021. The loans will support consumers in vulnerable circumstances who would benefit from affordable credit to meet unexpected costs and will provide an alternative to relying on high-cost credit. Fair4All Finance, who were founded to support the financial wellbeing of people in vulnerable circumstances, have been appointed to run the pilot and will enter contracts with lenders to deliver the loans, including to provide a partial guarantee against default losses. To facilitate the lending to consumers in vulnerable circumstances, HM Treasury will reimburse Fair4All Finance for eligible default losses they incur under eligible guarantees.
HM Treasury will reimburse Fair4All Finance for up to 80% of eligible default losses incurred as part of the pilot. HM Treasury will reimburse losses on loans made from 22 September 2021, but the liability will not be incurred until Fair4All Finance enter guarantees with eligible lenders and defaults occur, which is not expected until financial year 2022-23.
The maximum amount to be paid under the contingent liability is £10 million, with expected payments totalling £1.8 million. HM Treasury will reimburse Fair4All Finance for eligible default losses on loans initiated after 22 September 2021 and will stop reimbursing costs by 31 March 2026. If the liability is called, provision for any payment will be sought through the normal supply procedure.