Payday lenders should be regulated

Companies like Wonga are currently trusted to regulate themselves, but that has to change.

On Monday Stella Creasy, the MP for Walthamstow, tabled an amendment to the Financial Services Bill which calls for the Financial Conduct Authority (FCA), the new financial regulator, to be given the power to set the total cost of credit that a lender can charge, rather than the self-regulatory model which currently exists.

Creasy’s amendment, which would be extended to clause 22, reads:

The FCA may make rules or apply a sanction to authorised persons who offer credit on terms the FCA judge to cause consumer detriment.

This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.

Andrew Tyrie, the chairman of the Treasury select committee, back in January this year viewed the creation of the FCA as an opportunity to improve upon the way in which the Financial Services Authority (FSA) regulated financial products.

However Tyrie did also warn that:

If we are not careful, the FCA will become the poor relation among the new institutions.

Many – Stella Creasy included – were hopeful about products such as payday loans being regulated "under one roof" by the FCA, but were concerned the authority didn’t have enough teeth to clamp down on irresponsible or predatory lending.

In many ways the FCA needs to challenge the "light touch regulation" of the day. The OFT's 2010 guidance for creditors on irresponsible lenders points out that credit commitments should involve consideration from the lender to assess a loan’s affordability to a potential debtor.

The FCA needs to do more than just assume a lender will do this assessment, particularly as rollover loans benefit it to the detriment of a debtor.

Moreover, we know payday lenders do not always make good on their promise to lend responsibly.

Wonga, the payday lender, who, it has to be said, recieves all the attention over far more dangerous lenders in the market, itself doesn’t always keep its word on responsible lending.

During an interview in March 2011 with the Guardian journalist Amelia Gentleman, with the opportunity to showcase some examples of, in Gentleman's words, the "web-savvy young professionals that the company believes it's catering to", Wonga decided to showcase Susan.

Gentleman writes of Susan:

She finds that with the cost of living rising, her benefits sometimes don't stretch to the end of the month, and has taken out loans with Wonga to buy food, if she's caught short. She's a bit vague, but thinks she's taken out half a dozen loans with Wonga over the past few months. . . She has had problems with credit cards before, and doesn't have an overdraft, but Wonga gave her credit very swiftly.

Not only will Susan's income be significantly less than that of the average person to take out a Wonga loan, according to Wonga themselves, she manages to be in that category of people who haven't access to mainstream forms of borrowing, has taken out nearly double the average payday loans per year per borrower (three-and-a-half), has taken out exactly double the average amount of loans Wonga customers use and is still an example Wonga felt was a “good representative.”

As FSA chief executive Hector Sands said on the release of the FCA's approach document, trust in financial services is at an “all time low”. It is the task of the FCA to find “the right balance between the benefits of early intervention and the consequent risks of reducing choice and raising costs”.

These are, of course, strong words given the context of the regulatory authority’s previous shyness towards tough action. But enough time has been spent tip-toeing around the issue; we need to learn how it is done in other countries instead of trying to reinvent the wheel.

When I caught up with Damon Gibbons, Director of the Centre for Responsible Credit and the author of a forthcoming book on debt in the 21st century, he reminded me:

The Financial Conduct Authority needs to be provided with the powers to help consumers who are being ripped off by unfair charges and extortionate interest rates. In many cases, the price of credit has nothing to do with the genuine risk to the lender, but is set at a level that simply takes advantage of consumers who are on desperately low incomes and need urgent access to cash.  There is no place for that sort of profiteering from poverty in many other European countries, most US states or Canada and we should give our regulator the powers to stamp it out here as well.

The amendment which Stella Creasy has suggested to the Financial Services Bill, the response to which should be known by May, would be a good chance for the government to signal its opposition to socially harmful lending. Those on the side of fairness should hold out hope.

A payday lender in Rochdale, England. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

Screengrab from Telegraph video
Show Hide image

The Telegraph’s bizarre list of 100 reasons to be happy about Brexit

“Old-fashioned light bulbs”, “crooked cucumbers”, and “new vocabulary”.

As the economy teeters on the verge of oblivion, and the Prime Minister grapples with steering the UK around a black hole of political turmoil, the Telegraph is making the best of a bad situation.

The paper has posted a video labelled “100 reasons to embrace Brexit”. Obviously the precise number is “zero”, but that didn’t stop it filling the blanks with some rather bizarre reasons, floating before the viewer to an inevitable Jerusalem soundtrack:

Cheap tennis balls

At last. Tennis balls are no longer reserved for the gilded eurocrat elite.

Keep paper licences

I can’t trust it unless I can get it wet so it disintegrates, or I can throw it in the bin by mistake, or lose it when I’m clearing out my filing cabinet. It’s only authentic that way.

New hangover cures

What?

Stronger vacuums

An end to the miserable years of desperately trying to hoover up dust by inhaling close to the carpet.

Old-fashioned light bulbs

I like my electricals filled with mercury and coated in lead paint, ideally.

No more EU elections

Because the democratic aspect of the European Union was something we never obsessed over in the run-up to the referendum.

End working time directive

At last, I don’t even have to go to the trouble of opting out of over-working! I will automatically be exploited!

Drop green targets

Most people don’t have time to worry about the future of our planet. Some don’t even know where their next tennis ball will come from.

No more wind farms

Renewable energy sources, infrastructure and investment – what a bore.

Blue passports

I like my personal identification how I like my rinse.

UK passport lane

Oh good, an unadulterated queue of British tourists. Just mind the vomit, beer spillage and flakes of sunburnt skin while you wait.

No fridge red tape

Free the fridge!

Pounds and ounces

Units of measurement are definitely top of voters’ priorities. Way above the economy, health service, and even a smidgen higher than equality of tennis ball access.

Straight bananas

Wait, what kind of bananas do Brexiteers want? Didn’t they want to protect bendy ones? Either way, this is as persistent a myth as the slapstick banana skin trope.

Crooked cucumbers

I don’t understand.

Small kiwi fruits

Fair enough. They were getting a bit above their station, weren’t they.

No EU flags in UK

They are a disgusting colour and design. An eyesore everywhere you look…in the uh zero places that fly them here.

Kent champagne

To celebrate Ukip cleaning up the east coast, right?

No olive oil bans

Finally, we can put our reliable, Mediterranean weather and multiple olive groves to proper use.

No clinical trials red tape

What is there to regulate?

No Turkey EU worries

True, we don’t have to worry. Because there is NO WAY AND NEVER WAS.

No kettle restrictions

Free the kettle! All kitchen appliances’ lives matter!

Less EU X-factor

What is this?

Ditto with BGT

I really don’t get this.

New vocabulary

Mainly racist slurs, right?

Keep our UN seat

Until that in/out UN referendum, of course.

No EU human rights laws

Yeah, got a bit fed up with my human rights tbh.

Herbal remedy boost

At last, a chance to be treated with medicine that doesn’t work.

Others will follow [picture of dominos]

Hooray! The economic collapse of countries surrounding us upon whose trade and labour we rely, one by one!

Better English team

Ah, because we can replace them with more qualified players under an Australian-style points-based system, you mean?

High-powered hairdryers

An end to the miserable years of desperately trying to dry my hair by yawning on it.

She would’ve wanted it [picture of Margaret Thatcher]

Well, I’m convinced.

I'm a mole, innit.