Panorama shows again that the UK payday loan industry is trouble

The government insists that there is enough regulation. They're wrong, writes Carl Packman.

Rochdale, one of the pioneering towns in the UK during the industrial revolution, was a major mill town known for its exemplary textile manufacturing in the nineteenth century. It was also where the first fully documented credit union in the UK was set up in 1844, on which many others were subsequently modelled. 

Now Rochdale is a place blighted by poverty and unemployment (with rates 40 per cent higher than the national average).

It was also the focus of a recent episode of Panorama, showing the burden put on residents by home credit sellers and the wave of payday advance centres like The Money Shop who continue to draw bulging profits at a time of considerable financial hardship.

From various different shops, BBC reporter Richard Bilton collected nearly £1000 with relative ease and little questioning. 

Shockingly, all such shops are covered by the Office for Fair Trading (OFT). In 2010 the OFT's guidance for creditors on irresponsible lending pointed out that: 

“All assessments of affordability should involve a consideration of the potential for the credit commitment to adversely impact on the borrower's financial situation, taking account of information that the creditor is aware of at the time the credit is granted.”

At no point did any of the shops that Bilton entered assess or consider the adverse affects these loans could have on him – thus they were in breach of the OFT's guidance, as well as the codes of conduct by the Finance & Leasing Association, who independently monitor payday companies.

The problem here is light-touch regulation. In addition to guidance, the OFT can revoke credit licenses, but as David Fisher, OFT's director of consumer credit, pointed out earlier this year the OFT runs on only £11m with 120 staff in the consumer credit office. The incentive is therefore to let some cases slide.

With Panorama, Bilton also goes undercover and trains with a collection lady from the Provident – a company set up in the nineteenth century to offer loans to those excluded by banks.

A very telling part of the programme shows the lady say perversely of “good customers”, who do pay back money on each loan, that “you don't ever want them to pay up”.

This itself is indicative of the financial model of the payday lending industry and home credit itself, and really gets to the heart of the matter. Mark J. Flannery and Katherine Samolyk, in an influential paper Payday Lending: Do the Costs Justify the Price?, ask whether payday lenders can survive if they provide only "occasional" credit?

Part of a lender's schtick is that they only extend short-term credit to people as a quick-fix solution and that their model does not depend on customers rolling over on loans (taking out loans to service an existing loan).

But Flannery and Samolyk observe that, if this were true, such businesses might just survive by the skin of their teeth, though its long-term scale would be far smaller. In other words, for a lender to be completely responsible in their lending, they would have to forego profit maximisation and reduce the lifespan of their business – and given the regulatory landscape currently in force we have to trust them on their word that they follow a self-defeating business model.

Perhaps what was most disconcerting about meeting the collector Bilton shadowed was how unlikeable she was. Resorting to calling customers offensive names and lacking sympathy with them, gave the impression (despite this not being the BBC's intention) that all agents for home credit lenders are like this. This isn't the case.

It's often forgotten that collectors are sometimes just as vulnerable as the people they're collecting from. One former agent I spoke to, who worked with the Provident, took over the job from a friend who fell ill but wanted to keep her job with the company.

She told me she originally felt the company was respectable because her friend worked for them, though soon realised this wasn't true when collecting in some of the poorest parts of the area.

“There was a lot of pressure to keep selling”, she continued, “then after 18 weeks, if they couldn't pay, they'd send in collection agencies”. Furthermore, “managers themselves were giving the green light for lending to people who couldn't mentally consent, exploiting their disability.”

On several occasions she sacrificed her own commission to disincentivise customers from taking out more loans and offered them her own advice – something Provident itself would not take kindly to.

In spite of this, it is still the government's position that the UK regulatory architecture is enough. And yet it is evident that self-regulation is failing people in the poorest communities. Until such time that ministers open their eyes these practices will continue under our noses. 

Payday loans. 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.

Photo: Getty Images
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Responding to George Osborne's tax credit U-turn should have been Labour's victory lap

He changed the forecast, we changed the weather. But still it rains.

The Labour Party should have rested on its laurels in the Autumn Statement. While Gideon name checked his Tory colleagues for their successful lobbying, he should have been reading out the names of Labour members who changed his position.  I'll let the Tories have the potholes, (even though it was in Labour manifesto) but everything else was us. 

He stopped his assault on tax credits. Not because he woke up in his mansion in a cold sweat, the ghost of Christmas Future at the foot of his bed, ringing out the names of the thousands and thousands of children he would plunge into poverty. Nah, it's not that. It's as my sons might say "no way George, you got told!" The constant pressure of the Labour Party and a variety of Lords in a range of shades, supported by that media we are all meant to hate, did for him. It's the thousands of brilliant people who kept the pressure up by emailing politicians constantly that did it. Bravo us, boo nasty George!

As Baron Osborne thanked the Tory male MP for his brilliant idea, to spend the Tampax tax on women's services, I wanted to launch a tampon at his head. Not a used one you understand, I have some boundaries. He should have credited Paula Sheriff, the Labour MP for making this change. He should have credited all the brilliant women's groups, Yvette Cooper, Stella Creasy, Caroline Lucas and even little old me, for our constant, regular and persistent pestering on the subject of funding for refuges and women's services. 

On police cuts, his side should not have cheered him at all. We are now in a position when loud cheers are heard when nothing changes. So happy was his side that he was not cutting it, one can only conclude they really hate all the cutting they do. He should not have taken a ridiculous side swipe at Andy Burnham, but instead he should have credited the years and years of constant campaigning by Jack Dromey. 

I tell you what Georgie boy can take credit for, the many tax increases he chalked up. Increases in council tax to pay for huge deficit in care costs left by his cuts. Increases in the bit of council tax that pays for Police. Even though nothing changed remember. When he says levy or precept it's like when people say I'm curvy when they mean fat. It's a tax. 

He can take credit for making student nurses pay to work for free in the NHS. That's got his little privileged fingers all over it. My babies were both delivered by student midwives. The first time my sons life was saved, and on the second occasion my life was saved. The women who saved us were on placement hours as part of their training, working towards their qualifications. Now those same women, will be paying for the pleasure of working for free and saving lives. Paying to work for free! On reflection throwing a tampon at him is too good, this change makes me want to lob my sons placenta in his face.

Elsewhere in Parliament on Autumn Statement day Jeremy Hunt, capitulated and agreed to negotiate with Student Doctors. Thanks to the brilliant pressure built by junior doctors and in no small part Heidi Alexander. Labour chalks up another win in the disasters averted league.

I could go on and on with thanks to charities, think tanks, individual constituents and other opposition MPs who should have got the autumn cheers. We did it, we were a great and powerful opposition, we balanced the pain with reality. We made Lord sorry the first Lord of the Treasury and his stormtroopers move from the dark side. We should have got the cheers, but all we got was a black eye, when a little red book smacked us right in the face.