Payday loans: "Don’t worry, love, they don’t need your backstory!"

Welcome to the world of "zombie debtors".

I spent yesterday shivering nervously in the cold outside a payday loan shop in Peckham, south London. A woman with large, fake eyelashes took pity on me on her way out. I said I couldn't meet my rent after my boyfriend walked out of our one-bedroom flat. I was considering taking out a loan, but I'd never done it before. Could I make the repayments?

"Oh don't worry about that, love," she said as she grabbed my hand and breezed me into the warm store, "They don't need your backstory!"

It was only once inside I realised that my newfound friend got £10 off her loan for bagging another customer. Apparently I wasn't the first she'd brought in.

Luckily I didn't need the loan that day. But according to new research from the insolvency trade body R3, some 3.5 million Britons will be considering taking out payday loans in the next six months, forcing the government to introduce a new regulation yesterday. I'd heard the horror stories, but I wanted to see what it was like for myself by posing as a customer.

Inside the shop, I had to speak through a phone to the cashier, who was behind glass. When I explained I was worried about paying the money back, given my rent problem, she told me not to worry. The rate was 25 per cent, she said, and she could get it to me in 15 minutes.

She didn't tell me that if I missed the payment, the APR was 1,410.3 per cent.

When I added I thought I might lose my job next year, she didn't flinch. "We do loans on benefits too," she smiled.

When I told another company I thought I might be pregnant, they said I could always "roll the debt over" and just repay the interest.

R3 researchers claim almost half of us now struggle to make it to payday, rising to 62 per cent for 24-to-44-year-olds. This is fuelling a boom in the payday loans industry, which is now estimated to be worth roughly £2bn a year.

The survey also found that one in six borrowers is now a "zombie debtor", the label given to people treading water by paying back the interest on their loan while leaving the capital debt untouched.

I visited four other shops that day. There are many more clustered around Rye Lane, and that's not including the gold shops and pawnbrokers that are introducing their own short loans. With their flashing casino-style lights and tinsel-covered windows, they stand out. 'Tis the most lucrative season of the year.

In three out of four stores, I was not told the interest rate until I explicitly asked for it. Although these companies are supposed to complete full credit checks, one cashier said I didn't need to bother going home to get my financial statements; she could just make a "quick call to the bank" to check my last pay cheque.

There is a need for personal responsibility here, but when I made it clear I was anxious and didn't know what APR stood for, no one suggested that I seek advice.

Some stores were better than others. One said it could only lend me 10 per cent of my wages and a cashier at another suggested, with a wince, that I might want to think about "pawning gold instead". But no one turned me away.

Proponents argue that it's a free market, but it's not. Free markets require rational economic agents making free and informed decisions. But as Daniel Knowles points out in the Telegraph, people who accept a loan with up to 4000 per cent APR must usually be ignorant, or desperate.

Efficient markets also need free information. But that assumption doesn't apply, either. Borrowers are told it's a good rate if they pay it back quickly, but the APR rate given often hides roll-over charges and there can be extra Ryan Air-style charges for instant cash.

And let's be clear, this is not a service for everyone. There is a reason you find these shops on the high streets of Peckham and Brixton rather than Highgate and Chelsea. According to Consumer Focus, some two-thirds of borrowers have a household income of less than £25,000 and the average amount borrowed is about £300. This is a service for people without alternatives.

Thanks in large part to the campaigns of Stella Creasy MP, the government was forced to announce a tightening in regulation yesterday. But its proposals amount to little more than a voluntary code of practice. After my experience yesterday, this seems at best naive.

For a government that rallies against public borrowing, it has done very little to tackle the personal debt of our country's poorest people. It is not a coincidence that the number of payday loans taken out is growing at a time when the economy is flatlining, with no growth strategy. And there is something sick about charging £25 for £100 when taxpayers prop up the banks.

Any solution to this problem must have two sides. First, we need meaningful constraints on these companies. Debts shouldn't be allowed to roll over more than a certain number of times and powers should be given to local authorities to limit the number of payday loan companies on their high streets.

But, without viable alternatives, we run the risk of driving people to loan sharks. To stop that happening, we need to give people access to other forms of credit. The London Mutual Credit Union has just started providing one such option, and colleagues at Southwark Council have launched a new publicity campaign to spread the word. We can't afford not to listen.

Rowenna Davis is a journalist and author of Tangled up in Blue: Blue Labour and the Struggle for Labour's Soul, published by Ruskin Publishing at £8.99. She is also a Labour councillor.

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.