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.
 

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Mass surveillance doesn’t work – it’s time to go back to the drawing board

Lacking an answer to the problem of radicalisation, the government has confused tactics with strategy.

This week saw the release of not one but two parliamentary reports on the government’s proposed new spying law, the first from the Intelligence and Security Committee and the second from the Joint Committee on the Draft Investigatory Powers Bill.

Both reports suggested the government hasn’t fully made the case for some elements of mass surveillance put forward in the Bill. But neither went so far as to ask the most important question in this debate – does mass surveillance actually work?

The proposed law, known as the Investigatory Powers Bill, looks set to enshrine almost all the government’s mass surveillance powers and capabilities in a single law for the first time. It has been touted by the Prime Minister as a vital weapon in the UK’s fight against Islamic State.

Most of the noise about mass surveillance since the Snowden revelations has predictably come from civil liberties groups. But the privacy and safeguards debate skips over the highly dubious assumption underpinning the Investigatory Powers Bill – that mass surveillance will stop terrorists.

In fact, mass surveillance is not only ineffective but downright counter-productive.

A 2009 report by the US government found that only 1.2 per cent of tips provided to the FBI by mass surveillance techniques made a significant contribution to counter-terrorism efforts. Another recent study by the New America Foundation found that National Security Agency mass data collection played a role in, at most, 1.8 per cent of terrorism cases examined. By contrast, traditional investigative methods initiated 60 per cent of investigations. Suddenly mass surveillance doesn’t seem so vital.

This is because the technology is far from perfect. As computer scientist Ray Corrigan has written, “Even if your magic terrorist-catching machine has a false positive rate of 1 in 1,000—and no security technology comes anywhere near this—every time you asked it for suspects in the UK it would flag 60,000 innocent people.”

Perversely, this lack of precision means mass surveillance can actually frustrate counter-terrorism efforts. Michael Adebolajo, who brutally murdered Fusilier Lee Rigby in 2013, was so well known to the security services prior to the attack they had even tried to recruit him as an informant. Yet insufficient monitoring later on let him slip through the net. The same thing happened with the Hebdo killers. Mass surveillance means intelligence analysts are forced to spend their time fruitlessly sifting through endless reams of data rather than carrying out the targeted monitoring and detection that’s really needed.

Counter-radicalisation experts have meanwhile argued that mass surveillance may alienate Muslim communities, making them distrustful of the police and possibly even contributing to radicalisation. In 2014, Jonathan Russell from the counter-extremism group Quilliam wrote that the “introduction of a sweeping [mass surveillance] law…will be exploited by extremists to show that the government wants to spy on its own citizens [and] that all Muslims are suspected of being terrorists.” This will set alarm bells ringing for those who know the fight against terrorism will ultimately be won only by preventing radicalisation in the first place.

And therein lies the real problem with this Bill. It’s tactics, not strategy. If we stop for a second and think about what the problem is – namely that thousands of young Britons are at risk of radicalisation – we’d never prescribe mass surveillance as the answer. It would be nonsensical to propose something that risks making alienation worse.

The trouble is we don’t have a convincing answer to the actual problem. The government’s counter-radicalisation strategy is mired in controversy. So instead a different question is being posed. Not how do we stop people from signing up to join Islamic State, but how do we gather as much communications data as possible? GCHQ have an answer for that. It’s a classic case of confusing a tactic – and a highly unreliable one at that – with a strategy actually designed to tackle the root of the problem.

Never mind our privacy for a moment. For the sake of our security, it’s time to go back to the drawing board and think of something better.

 

Andrew Noakes is Senior Advocacy Officer at the Remote Control Project. He writes about covert and unconventional methods of warfare, counter-terrorism, and human rights.