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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Carwyn Jones is preparing for a fight with the UK government

From Labour's soft-nationalist wing, Jones has thought carefully about constitutional politics. 

This week's 20th anniversary of the 1997 Yes vote on devolution in Wales was a rather low-key affair. But then while there are plenty of countries around the world that celebrate an Independence Day, few nations or regions around the world would make much fuss about "Partial Autonomy Day".

The most important single event of the day was, almost certainly, the address by First Minister Carwyn Jones at the Institute of Welsh Affairs’ 20th anniversary conference. The sometimes diffident-seeming Welsh Labour leader has rarely been on stronger form. Much of his speech was predictable: there were his own recollections of the 1997 referendum; some generous reflections on the legacy of his now-departed predecessor, Rhodri Morgan; and a lengthy list of identified achievement of devolved government in Wales. But two other features stood out.

One, which might have struck any observers from outside Wales was the strongly Welsh nationalistic tone of the speech. In truth this has long been typical for Jones, and was a very prominent element of the successful Labour general election campaign in Wales. A fluent Welsh-speaker and long a part of the soft-nationalist wing of Welsh Labour, the First Minister briefly considered what would have been the consequences of the achingly-close 1997 ballot having gone the other way. Wales, we were told, would no longer have had the right to be considered a nation – it might even (gasp!) have lost the right to have its own national football team. But this theme of the speech was also linked to devolution: why should Wales not have parity of treatment on devolved matters with Scotland?

The most striking feature of the speech, however, was the confidence and combativeness with which the First Minister set about attacking the UK government on constitutional matters. This territory has often appeared to be the area which most animates Jones, and on which he is most comfortable. He has clearly thought a great deal about how to protect and develop the constitutional status of devolved Wales. The First Minister was clearly deeply unimpressed by the UK government’s handling of Brexit as a whole, and he linked Brexit to broader problems with the UK government’s approach to the constitution. Brexit was declared in the speech to be the "biggest threat to devolution since its inception" – and the audience were left in no doubt as to where the blame for that lay. Jones was also clearly very comfortable defending the joint stance he has taken with the Scottish National Party First Minister of Scotland, in opposing the EU Withdrawal Bill and much of the UK government’s approach to Brexit negotiations. This high level Labour-SNP cooperation – extraordinary, given the otherwise utterly toxic relations between the two parties – was argued to be the necessary consequence of the UK government’s approach, and the threat of a power-grab by Westminster of powers that are currently devolved. 

Finally, the First Minister had one new card up his sleeve. He was able to announce a Commission on Justice in Wales, to be chaired by a figure of impeccable authority: the soon-to-retire Lord Chief Justice of England and Wales, John Thomas. The clear intention of the Welsh government seems to be to use this commission to advance their agenda of a distinct Welsh legal jurisdiction. This is another matter on which there appears to be little current common ground with the UK government.

Carwyn Jones emerged from the general election as a greatly strengthened figure: having led the Labour campaign in Wales when it appeared that the party might be in difficulty, he deservedly accrued much political capital from Welsh Labour’s success in June. The First Minister has been thinking imaginatively about the UK constitution for some years. But for a long time he failed even to carry much of the Welsh Labour party with him. However, he succeeded in having many of his ideas incorporated into the Labour UK manifesto for June’s election; he is no longer a voice crying out in the wilderness. On the anniversary of devolution, Jones said little that was wholly new. But the combination of everything that he said, and the tone and confidence with which he said it, was striking. This was not the speech of a man looking to back away from a confrontation with the UK government. Wales seems up for a fight.

Roger Scully is Professor of Political Science in the Wales Governance Centre at Cardiff University.