BIS and OFT hint at cosmestic changes to payday loan regulations

Some positive, but largely symbolic, news.

There are going to be some positive changes happening to the regulation of the payday lending industry as of Wednesday–though we can expect a mixed reception from the release of two government reports looking in to it, one by the Office for Fair Trading (OFT) and the other by the Department of Business, Industry and Skills (BIS). 

To put a positive gloss on them more work will be done by the regulatory body to ensure bad practices in the industry, such as not carrying out rigorous credit checks, will be properly punished. On the other hand the BIS report has found evidence that capping the cost at which credit can be sold (notoriously high by payday lenders on the high street, many of whom have a 4000 per cent APR attached to them) would be a detriment to consumers.

Despite the prospect of rogue lenders losing their licenses, this will come as a disappointment to critics of the payday lending industry who felt there would be a significant change in direction by the government, after amending the Financial Services Bill last year to give the newly created Financial Conduct Authority the power to cap the cost of credit. 

But there are many reasons why Wednesday's reports will be disappointing. Recommendations by the OFT rehash their existing guidance on lending rules. Indeed nothing much is changing, what they are now promising again to do is better enforce their own guidelines. 

For example 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.

Their call for better affordability assessments has always been stipulated for by the regulators. The other recommendations they have made, including transparency on how lenders collect their money and the need for forbearance measures, are also already catered for. The only difference being that they have been unable to properly enforce their regulations. Only time will tell whether that has changed. 

As for the BIS report the research into what effect a cap on the cost of credit will look like was only based upon research of interest rate caps. As the report itself says:

The available evidence about the impact of price restrictions on the cost that consumers pay for credit relates to interest rate restrictions, however, not the total charge for credit.

We might excuse this on the grounds that no other country puts a cap on the total cost of credit, while many other countries have interest rate caps. But the government should waste no more time on this and assess properly what kind of regulation we really need to ensure borrowers are not paying over the odds for their credit. 

Essentially all that BIS, who commissioned the Personal Finance Research Centre at the University of Bristol to carry out the research, have done is look at what will happen if you remove the supply of credit when there is high demand. Inevitably, in isolation, this will be detrimental to consumers.

Government focus, however, should be on how to get payday lenders themselves to reduce their front end fees like administrative costs. There needs to be greater transparency on how these costs are realised and work should be done with the payday lending industry to see if those costs can be cheaper for the borrower.

Focus should also be laid upon how mainstream banks can incorporate those borrowers who might otherwise seek high cost credit, which itself is detrimental to their personal finances, discourages savings behaviour or putting money away for a rainy day, and impacts negatively on consumer-led growth.

Furthermore government needs to look into building up alternative lenders such as non-profit credit unions, who sell credit at a much cheaper rate of interest, and provide debt management advice for those in vulnerable situations. 

And lastly more focus should be put on addressing the root cause of the growth in the payday lending industry: stagnating wages; the rising cost of living; and high unemployment.

We can draw some positivity from this latest news, but it is largely symbolic. In truth the findings of both reports will only scratch the surface of the problem. Far more work needs to be done, and fast, as personal debt crises, bolstered by payday lenders, are taking grip of vulnerable households right now. 

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.
 

Nicola Sturgeon. Photo: Getty
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For the first time in decades, there is genuine dissent in Scottish Nationalist ranks

The First Minister is facing pressure to talk less about independence - and bring on new talent in her party.

She so recently seemed all-powerful, licensed to reign for as long as she chose, with the authority to pursue the return of our national sovereignty. We would then have the ability to strike our own deals on our own terms, a smaller, smarter, leaner nation freed from the stifling constraints of partnership with a much larger neighbour. There was, she repeatedly told us, nothing to be afraid of.

Now, suddenly, she is the victim of her own miscalculation: having misread the public mood, having raced too far ahead of moderate opinion, she finds herself at bay. The voters have delivered a public humiliation, while an opposition party until recently lampooned as unelectable is on the march. There is, suddenly, talk of her departure sooner rather than later.

Yes, this is a tough time to be Nicola Sturgeon…

Let’s not overstate it. The position of Scotland’s First Minister is considerably more secure than that of the UK’s Prime Minister. Theresa May wants out as soon as is feasible; Sturgeon, one suspects, will have to be dragged from Bute House. Sturgeon retains enough respect among the public and support among her colleagues to plough on for now. Nevertheless, things are not what they were before the general election and are unlikely ever to return to that happy state.

It’s all because of Scexit, of course. Sturgeon’s unseemly sprint for the indy finishing line left enough Scottish voters feeling… what? Mistreated, taken for granted, rushed, patronised, bullied… so much so that they effectively used June 8 to deliver a second No vote. With the idea of another referendum hanging around like a bad headache, the electorate decided to stage an intervention. In just two years, Sturgeon lost 40 per cent of her Westminster seats and displaced half a million votes. One could almost argue that, by comparison, Theresa May did relatively well.

For the first time in decades, there is genuine dissent in Nationalist ranks. Tommy Sheppard, a former Labour Party official who is now an influential left-wing SNP MP, published an article immediately after the general election calling on the First Minister to ‘park’ a second referendum until the Brexit negotiations are complete. There are others who believe the party should rediscover its talent for the long game: accept the public mood is unlikely to change much before the 2021 devolved elections, at which point, even if the Nats remain the single largest party, Holyrood might find itself with a unionist majority; concentrate on improving the public services, show what might be done with all the powers of an independent nation, and wait patiently until the numbers change.

There are others – not many, but some – who would go further. They believe that Sturgeon should take responsibility for the election result, and should be looking to hand over to a new generation before 2021. The old guard has had its shot and its time: a party with veterans such as Sturgeon, John Swinney and Mike Russell in the key jobs looks too much like it did 20 years ago. Even the new Westminster leader, Ian Blackford, has been on the scene for donkey’s. There are more who believe that the iron grip the First Minister and her husband, SNP chief executive Peter Murrell, have on the party is unhealthy – that Murrell should carry the can for the loss of 21 MPs, and that he certainly would have done so if he weren’t married to the boss.

The most likely outcome, given what we know about the First Minister’s nature, is that she will choose something like the Sheppard route: talk less about independence for the next 18 months, see what the Brexit deal looks like, keep an eye on the polls and if they seem favourable go for a referendum in autumn 2019. The question is, can a wearied and increasingly cynical public be won round by then? Will people be willing to pile risk upon risk?

As the hot takes about Jeremy Corbyn’s surprise election performance continue to flood in, there has been a lot of attention given to the role played by young Britons. The issues of intergenerational unfairness, prolonged austerity and hard Brexit, coupled with Corbyn’s optimistic campaigning style, saw a sharp rise in turnout among that demographic. Here, Scotland has been ahead of the curve. In the 2014 referendum, the Yes campaign and its can-do spirit of positivity inspired huge enthusiasm among younger Scots. Indeed, only a large and slightly panicked defensive response from over-65s saved the union.

That brush with calamity seems to have been close enough for many people: many of the seats taken from the Nats by the Scottish Tories at the general election were rural, well-to-do and relatively elderly. The modern electorate is a fickle thing, but it remains rational. The Corbynites, amid their plans for total world domination and their ongoing festival of revenge, might bear that in mind.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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