Can credit scores make payday lending ethical?

Payday lenders need to work harder to not target vulnerable borrowers.

A new report (pdf) by Damon Gibbons, published in partnership by Friends Provident and the Centre for Responsible Credit, looks at the benefits of credit data sharing and raises another possible solution to the problem of irresponsible lenders targeting the financially vulnerable.

It might be a surprise that credit scoring is not standard procedure for high-cost lenders on the high street and online. But most of us are familiar with payday lenders' adverts promising easy cash with no credit checks. The speed with which hard-up borrowers can obtain very expensive loans does have consequences, and making data sharing a priority would start to set this problem straight.

What does credit scoring and data sharing involve?

Credit scoring, simply put, is the system financial institutions have in place to check whether a person is said to be creditworthy before assessing a loan application. The system, regulated by the Financial Services Authority, works on a points system and is often shared with credit reference agencies. If a person's points score is deemed high enough then their loan application will generally be accepted; otherwise, that loan application can be denied.

How it can benefit responsible lending?

The Office for Fair Trading's guidance to lenders on responsible lending states that a creditor must consider whether a credit commitment will adversely impact upon an individual's financial situation. Ideally, credit scoring and data sharing can help lenders adhere to those guidelines. They will finally have a database to look at which will give them some indication of whether a loan of a particular amount, say, will be beneficial to them or impact negatively on their financial situation.

What bad behaviour it can stop?

At the moment there is no law stopping a payday lender from lending large sums of money, at expensive rates of interest, to low income consumers. There is only guidance to do this, and we know that this is not always adhered to. While we know payday lenders profit from repeat customers, and that only between 50 and 60 per cent of loans from payday lenders are notified with credit reference agencies, even some in the industry say that moving to a culture of data sharing would ensure that the risks attached to lending money are reduced, as well as some of the front end costs.

What are the risks?

The big risk is that credit scores could make it more difficult for a person to obtain credit.

The government, on this, have said that while they appreciate the need for credit scoring, they do take into consideration the “unintended consequences”, such as to those with no, or "thin", credit rating struggling to get loans.

However in addition to better quality lending decisions, it would be worthwhile for mainstream credit providers to be less needlessly risk averse when considering overdraft and credit applications to low income customers who may otherwise rely on a high cost payday lender, where the average loan can cost around £30 per £100 borrowed.

What policy makers should do

Two things: set criteria for what is meant by responsible lending, such as setting a minimum level of disposable income a borrower is left with after taking on a loan; and oblige lenders to refer high risk customers to credit unions, where they can receive budget management advice and borrow money at far cheaper prices.

Furthermore, payday lenders should be obliged to implement a system of five roll-over loans per customer. Credit checks will provide the data for customers who reach this point.

Credit scoring and data sharing, implemented properly, can be the lifeline borrowers need at a time when personal debt is growing and the payday lending sector is seeing its profits soar.

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.
 

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The Femicide Census honours the victims of gender violence

The survey shows that the majority of women who are killed by men suffer their fate at the hands of a current or former partner.

 

The phrase “isolated incident” often turns up in media reports when a man kills a woman. The police use it at press conferences. It’s a code: it means the story ends here, no one else is in danger, the rest of the world can sleep safe because this particular killer does not have his sights on anyone else.

Thanks to the Femicide Census – a collaboration between Women’s Aid and nia, two specialist services dealing with violence against women – we now know how many of those “isolated incidents” there are, in England and Wales at least. Between 1 January 2009 and 31 December 2015, it was nearly a thousand: 936 women (aged 14 and over) were killed by men in seven years.

As the census reveals, the killing of women follows a very different pattern to the killing of men, although there is one thing both groups of victims have in common: their killers are almost always men.

But female victims are more likely to know their killer than male victims. In fact, they usually know him very well: 598 (64%) of the women were killed by a current or former partner, 75 (8%) by their son, 45 (4.8%) by another male family member. Killing is often what the census describes as “the final act of control”: not an “isolated incident”, but the culmination of a long campaign of coercion and violence.

This means that trends in femicide – the killing of a woman by a man – don’t match the overall homicide trend, as a 2011 UN study found when it noted that the overall rate of homicide had fallen while killings of women remained stable. But official records have long failed to recognise this difference, and there were no statistics specifically on men’s fatal violence against women until 2012, when Karen Ingala Smith (CEO of nia) started cataloguing reports of women killed by men on her personal blog, a project she called Counting Dead Women.

That was the start of the Femicide Census, now a high-powered data project on a platform developed by Deloitte. The list has been expanded so that victim-killer relationship, method of killing, age, occupation, ethnicity, health status and nationality can all be explored.

Or rather, these factors can be explored when they’re known. What gets reported is selective, and that selection tells a great a deal about what is considered valuable in a woman, and what kind of woman is valued. As the census notes: “almost without exception, it was easier to find out whether or not the victim had been a mother than it was to find out where she worked”.

Killings of black, Asian, minority ethnicity and refugee women receive vastly less media coverage than white women – especially young, attractive white women whose deaths fulfil the stranger-danger narrative. (Not that this is a competition with any winners. When the press reports on its favoured victims, the tone is often objectifying and fetishistic.)

Women’s chances of being killed are highest among the 36-45 age group, then decline until 66+ when they jump up again. These are often framed by the perpetrators as “mercy killings”, although the sincerity of that mercy can be judged by one of the male killers quoted in the census: “‘I did not want her to become a decrepit old hag.”

Another important finding in the census is that 21 of the women killed between 2009 and 2015 were involved in pornography and/or prostitution, including two transwomen. The majority of these victims (13 women) were killed by clients, a grim indictment of the sex trade. The most chilling category of victim, though, is perhaps the group of five called “symbolic woman”, which means “cases where a man sought to kill a woman – any woman”. In the purest sense, these are women who were killed for being women, by men who chose them as the outlet for misogynist aggression.

The truth about men’s fatal violence against women has for too many years been obscured under the “isolated incident”. The Femicide Census begins to put that ignorance right: when a man kills a woman, he may act alone, but he acts as part of a culture that normalises men’s possession of women, the availability of women for sexual use, the right to use force against non-compliant or inconvenient women.

With knowledge, action becomes possible: the Femicide Census is a clarion call for specialist refuge services, for support to help women exit prostitution, for drastic reform of attitudes and understanding at every level of society. But the census is also an act of honour to the dead. Over two pages, the census prints the names of all the women to whom it is dedicated: all the women killed by men over the six years it covers. Not “isolated incidents” but women who mattered, women who are mourned, women brutally killed by men, and women in whose memory we must work to prevent future male violence, armed with everything the census tells us.

 

Sarah Ditum is a journalist who writes regularly for the Guardian, New Statesman and others. Her website is here.