The FCA needs to be allowed to tackle the legal loan sharks

The new financial regulator ought to have payday lenders in its remit, writes Carl Packman.

Yesterday, Lord Parry Mitchell of Labour's BIS team in the House of Lords introduced an amendment to the Financial Services Bill to give the new Financial Conduct Authority (FCA) the power to set guidelines on the impact of lenders’ behaviour on consumers, which will, he writes, potentially include the capping of interest rate charges.

The FCA, which will take over the regulatory framework of the Office for Fair Trading (OFT) later this year, has received much scrutiny its planned remit. 

Many, such as Stella Creasy MP, were hopeful that with products such as payday loans being regulated "under one roof" by the FCA, the industry would be easier to get a grip on. That optimism  is no more.

Andrew Tyrie, the chairman of the Treasury select committee, in January this year argued that the creation of the FCA was an opportunity to improve upon the way in which the Financial Services Authority (FSA) regulated financial products. 

But he did also warn that: 

If we are not careful, the FCA will become the poor relation among the new institutions.

Without interventions like that of Lord Mitchell, a poor relation is exactly what the FCA is destined to be. 

Lord Mitchell's amendment calls for:

Power of the FCA to make further provision about regulation of consumer credit 

  1. The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment.
  2. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.

Without question the FCA should lay focus on responsible lending, which is the crux of the first clause, for time and time again payday lenders prove their inability to self-regulate.

A recent episode of Panaroma showed BBC reporter Richard Bilton collecting nearly £1000 in under two hours with relative ease and little questioning. At no point did any of the shops that Bilton entered assess or consider the adverse affects these loans could have on him – thus they were in breach of the OFT's guidance.

In June the councillor and New Statesman writer Rowenna Davis did her own investigation which found payday lenders such as Speedy Cash and pawnbrokers such as Albermarle Bond handing over cash to individuals for rent, food and even betting on horses. 

Even Wonga, one of the more well known payday lenders, has been shown to lend irresponsibly. During an interview in March 2011 by the Guardian journalist Amelia Gentleman, with the opportunity to showcase some examples of, in Gentleman's words, the "web-savvy young professionals that the company believes it's catering to", Wonga decided to showcase Susan. Gentleman writes of Susan:

She finds that with the cost of living rising, her benefits sometimes don't stretch to the end of the month, and has taken out loans with Wonga to buy food, if she's caught short. She's a bit vague, but thinks she's taken out half a dozen loans with Wonga over the past few months... She has had problems with credit cards before, and doesn't have an overdraft, but Wonga gave her credit very swiftly.

Not only will Susan's income be significantly less than that of the average person to take out a Wonga loan, according to Wonga themselves, she manages to be in that category of people who haven't access to mainstream forms of borrowing, has taken out nearly double the average payday loans per year per borrower (three and a half), has taken out exactly double the average amount of loans Wonga customers use and is still an example Wonga felt was a "good representative."

If Lord Mitchell's amendment isn't carried it will demonstrate a clear message from the government that they believe the regulatory architecture set up in place for payday lenders, now and in the future, is fine as it is – when in fact this is anything but the case.

Yesterday was a chance, again, for the government to prove that it is for responsible lending. Lord Newby assured Lord Mitchell that it is learning, but only time will tell. The amendment was withdrawn, pending further comments.

A pay day lender in Rochdale. 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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Britain's shrinking democracy

10 million people - more than voted for Labour in May - will be excluded from the new electoral roll.

Despite all the warnings the government is determined to press ahead with its decision to close the existing electoral roll on December 1. This red letter day in British politics is no cause for celebration. As the Smith Institute’s latest report on the switch to the new system of voter registration shows, we are about to dramatically shrink our democracy.  As many as 10 million people are likely to vanish from the electoral register for ever – equal to 20 per cent of the total electorate and greater than Labour’s entire vote in the 2015 general election. 

Anyone who has not transferred over to the new individual electoral registration system by next Tuesday will be “dropped off” the register. The independent Electoral Commission, mindful of how the loss of voters will play out in forthcoming elections, say they need at least another year to ensure the new accuracy and completeness of the registers.

Nearly half a million voters (mostly the young and those in private rented homes) will disappear from the London register. According to a recent HeraldScotland survey around 100,000 residents in Glasgow may also be left off the new system. The picture is likely to be much the same in other cities, especially in places where there’s greater mobility and concentrations of students.

These depleted registers across the UK will impact more on marginal Labour seats, especially  where turnout is already low. Conversely, they will benefit Tories in future local, Euro and general elections. As the Smith Institute report observers, Conservative voters tend to be older, home owners and less transient – and therefore more likely to appear on the electoral register.

The government continues to ignore the prospect of skewed election results owing to an incomplete electoral registers. The attitude of some Tory MPs hardly helping. For example, Eleanor Laing MP (the former shadow minister for justice) told the BBC that “if a young person cannot organize the filling in of a form that registers them to vote, they don’t deserve the right to vote”.  Leaving aside such glib remarks, what we do know is the new registers will tend to favour MPs whose support is found in more affluent rural and semi-rural areas which have stable populations.  

Even more worrying, the forthcoming changes to MPs constituencies (under the Boundary Review) will be based on the new electoral register. The new parliamentary constituencies will be based not on the voting population, but on an inaccurate and incomplete register. As Institute’s report argues, these changes are likely to unjustly benefit UKIP and the Conservative party.

That’s not to say that the voter registration system doesn’t need reforming.  It clearly does. Indeed, every evidence-based analysis of electoral registers over the last 20 years shows that both accuracy and completeness are declining – the two features of any electoral register that make it credible or not. But, the job must be done properly.  Casually leaving 10m voters off the electoral resister hardly suggests every effort has been made.

The legitimacy of our democratic system rests on ensuring that everyone can exercise their right to vote. This is a task which shouldn’t brook complacency or compromise.  We should be aiming for maximum voter registration, not settling for a system where one in five drop off the register.