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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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue