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.
 

Getty
Show Hide image

Richmond is a victory for hope - now let's bring change across the country

The regressives are building their armies. 

Last night a regressive alliance was toppled. Despite being backed by both Ukip and the Conservative Party, Zac Goldsmith was rejected by the voters of Richmond Park.

Make no mistake, this result will rock the Conservative party – and in particularly dent their plans for a hard and painful Brexit. They may shrug off this vote in public, but their majority is thin and their management of the post-referendum process is becoming more chaotic by the day. This is a real moment, and those of us opposing their post-truth plans must seize it.

I’m really proud of the role that the Green party played in this election. Our local parties decided to show leadership by not standing this time and urging supporters to vote instead for the candidate that stood the best chance of winning for those of us that oppose Brexit. Greens’ votes could very well be "what made the difference" in this election (we received just over 3,500 votes in 2015 and Sarah Olney’s majority is 1,872) - though we’ll never know exactly where they went. Just as importantly though, I believe that the brave decision by the local Green party fundamentally changed the tone of the election.

When I went to Richmond last weekend, I met scores of people motivated to campaign for a "progressive alliance" because they recognised that something bigger than just one by election is at stake. We made a decision to demonstrate you can do politics differently, and I think we can fairly say that was vindicated. 

There are some already attacking me for helping get one more Liberal Democrat into Parliament. Let me be very clear: the Lib Dems' role in the Coalition was appalling – propping up a Conservative government hell bent on attacking our public services and overseeing a hike in child poverty. But Labour’s record of their last time in office isn't immune from criticism either – not just because of the illegal war in Iraq but also their introduction of tuition fees, privatisation of our health service and slavish worship of the City of London. They, like the Liberal Democrats, stood at the last election on an austerity manifesto. There is a reason that we remain different parties, but that doesn’t mean we shouldn't also seize opportunities like this to unite behind what we have in common. Olney is no perfect candidate but she has pledged to fight a hard Brexit, campaign against airport expansion and push for a fair voting system – surely progressives can agree that her win takes us forward rather than backwards?

Ultimately, last night was not just defeat of a regressive alliance but a victory for hope - a victory that's sorely needed on the back of of the division, loss and insecurity that seems to have marked much of the rest of this year. The truth is that getting to this point hasn’t been an easy process – and some people, including local Green party members have had criticisms which, as a democrat, I certainly take seriously. The old politics dies hard, and a new politics is not easy to forge in the short time we have. But standing still is not an option, nor is repeating the same mistakes of the past. The regressives are building their armies and we either make our alternative work or risk the left being out of power for a generation. 

With our NHS under sustained attack, our climate change laws threatened and the increasing risk of us becoming a tax haven floating on the edge of the Atlantic, the urgent need to think differently about how we win has never been greater. 

An anti-establishment wave is washing over Britain. History teaches us that can go one of two ways. For the many people who are utterly sick of politics as usual, perhaps the idea of politicians occasionally putting aside their differences for the good of the country is likely to appeal, and might help us rebuild trust among those who feel abandoned. So it's vital that we use this moment not just to talk among ourselves about how to work together but also as another spark to start doing things differently, in every community in Britain. That means listening to people, especially those who voted for Britain to leave the EU, hearing what they’re saying and working with them to affect change. Giving people real power, not just the illusion of it.

It means looking at ways to redistribute power and money in this country like never before, and knowing that a by-election in a leafy London suburb changes nothing for the vast majority of our country.

Today let us celebrate that the government's majority is smaller, and that people have voted for a candidate who used her victory speech to say that she would "stand up for an open, tolerant, united Britain".  But tomorrow let’s get started on something far bigger - because the new politics is not just about moments it's about movements, and it will only work if nobody is left behind.

 

Caroline Lucas is the MP for Brighton Pavilion.