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.

Photo: Getty Images
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No, Matt Hancock: under-25s are just as entitled to a payrise as the rest of us

At 25, parts of my body were more productive than the whole of Matt Hancock, says Jess Phillips.

I had never heard of Matt Hancock before today, which may be a sign of how productive he has been. He sprang up in my consciousness when he said this at the Tory party conference, when justifying not giving workers under 25 a payrise:

"Anybody who has employed people knows that younger people, especially in their first jobs, are not as productive, on average. Now there are some who are very productive under the age of 25 but you have to set policy for the average. It was an active choice not to cover the under 25s.”
No it bloody wasn't an active choice based on productivity! Lord knows this Government have failed to remember productivity for the past five years. How convenient to remember it when swindling young people.

Let's pretend for a minute that the Governments living wage is just that. Is Matt Hancock saying  that workers under 25 don't deserve to afford be able to live? By the time I was 25 I had a 3 year old. Did my son and I not deserve to be able to live? Oh and while they are there telling me I'm was an undeserving yoof, Hancock is now calling me useless. I don't know Matt Hancock I won't assume he was a lazy entitled toff, but I will wager at 23 I was as, if not more productive than him. I bet you I could have done his job, but he would have struggled to do mine. Maybe I'm wrong and he would have been a great support worker for refugees and carer for people with Alzheimer's all on three hours sleep a night whilst lactating.

Now, I'm not being fair. Of course he couldn't lactate.

The reason the government did this is nothing to do with productivity levels of young adults. It is because once again their limited life experience means that they think mummy and daddy pay for everything. Look no further than ridiculous student fees, cutting housing benefit for young people and now this "you don't deserve to be able to live" wage.

The hilarious thing will be when some employers completely disprove Hancock’s assertions and rush to employ lazy unproductive under 25s because they have to pay them less.
I won't bore you or Hancock with lists of brilliant examples of productive under 25s. The Twitter hashtag #at25 is full of great examples. The history of sport, science, music, art and computing is awash with inspiring world changing young people.Mr Hancock, here is a lesson I learned from the hundreds of productive young people I meet, be honest and say what you think. Your insulting gaffe is a pathetic spun cover up you arrived at when you were backed in to an impossible unjustifiable position. What you should have said was, "oh the reason we don't want to pay under 25s more is because we don't really care about them and let's be honest they don't really vote. Toodle pip."