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.
 

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.