Finally there's agreement that payday lending needs to be tackled. But how?

Access to banking, co-operative credit and caps on interest should all be considered.

The payday lending industry is in total disgrace. After a survey and report carried out by Citizens Advice, who called the industry “out of control”, it has been shown that lenders have sold loans to young people aged below 18, people with mental health difficulties and people who are drunk. This is contrary to any responsible lending criteria and should therefore be dealt with rigorously by the authorities. 

To make matters worse it has emerged that complaints to the Financial Ombudsman Service (FOS) about payday lending shot up 83 per cent last year, the third highest rise of any sector with the exception of the home credit industry (139 per cent) and payment protection insurance (PPI – 140 per cent).

The Office for Fair Trading officially began their investigation of the industry in March 2013, but since the CAB's results run up until 13 May 2013 (when their in-depth analysis of 780 cases stopped) it's safe to say that bad practice carried on regardless of OFT oversight. 

Even the payday lending trade association, the Consumer Finance Association, has its own Code of Practice which its members (making up 70 per cent of the payday lending market in the UK) pledge to commit to, including rules of affordability assessments, debt collection procedures and grace periods for troubled debtors. 

The trouble is irresponsible lending is woven so firmly into the business model of payday lending it is hard to erase it. When we consider for example that 28 per cent of loans are either rolled over (where one loan is taken out to service the interest on an existing loan) or refinanced, which provides 50 per cent of a lenders' revenue, it's a very big ask to expect the industry to voluntarily give up a big part of its profit maximisation. 

What's more is that payday lenders do not compete on price, but rather speed of service. Therefore if a high street is littered with lenders this will not have too much effect on the price at which a loan will cost (which ranges from around £25-35 per £100 loan, per month) but drives lenders to make faster decisions, incentivising the accepting of loan applications irresponsibly. 

As Stella Creasy MP said on Tuesday “this industry continues to fall out of the grip of regulators”. Indeed it looks like its getting worse before it gets better. 

However we are still at a point where we are merely finding faults with the industry and not seeking solutions. 

Gillian Guy, the chief executive of Citizens Advice, in her FT editorial on Tuesday, pointed out that banks need to take some part in the blame for the rise of payday lending. 

In so doing they should also do the following: a) accept responsibility and offer a product to challenge payday lending; b) provide basic “jam-jar” accounts for individuals which also offer budgeting support; c) offer face-face financial support; and d) reopen their offer of current accounts to undischarged bankrupts. 

This would be a fantastic start in the consumer credit industry, but alongside this government should also acknowledge the ways in which other countries tackle predatory lenders.

The Financial Conduct Authority will have the power to cap the cost of credit when they take over from the Financial Services Authority on payday lenders in April 2014. They should use it, looking to the rest of the world for guidance. 

For example in France and Germany there are restictions on where credit is available from. In Germany interest rates are capped at twice the market rate and in France the limit is reviewed every three months. There is no evidence to suggest illegal lending is any more a problem in those countries than in the UK where there is no cap on the price at which a lender can sell credit. 

Furthermore, in the UK, there are 7.7 million bank accounts without credit facilities, nearly four times the number of Germany (2 million at the end of 2006) and France (2.1 million in 2008),while 9 million people cannot access credit from mainstream banks in the UK, as opposed to around 2.5 million in Germanyand between 2.5 million and 4.1 million in France.

Looking further afield to Canada, unless changed through provincial legislation concerning the provisioning of payday loans, usury laws prevent lenders to charge interest above 60 per cent per year. In case this squeezed supply without addressing the demand for this type of finance, Canada has made a big push on credit unions as an alternative to high cost, short term credit. 

According to the World Council of Credit Unions Canada has the highest per-capita membership in credit unions in North America. More than a third of the population is a member of at least one credit union.

Also in Japan there has been a total cost of credit cap from 40 per cent to 29.2 per cent between 1986 and 2000. While illegal lending has not risen (in fact it rose with the loosening of restrictions on the amounts credit sellers could lend at) neither has lending from mainstream banks or Shinkin (the equivalent of credit unions). 

According to Damon Gibbons of the Centre for Responsible Credit, this has been “part of a more general trend amongst Japanese households to reduce their use of credit over this period.”

There are many more examples like this that the government could and should consider but instead it runs scared of firmer regulation. We've seen the damage and irresponsibility done by payday lending, now we need to do something about it. 

If Gillian Guy's recommendations about what the banks could do to incorporate more people into mainstream finance were taken up, government could really start to crack down on the legal loan sharks, bringing some crucial changes to responsible credit and financial inclusion.

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.
 

Getty
Show Hide image

“It feels like a betrayal”: EU citizens react to Jeremy Corbyn’s migration stance

How do Labour-supporting European migrants in the UK feel about their leader wanting to control EU migration?

“This feels a bit different from the man I had campaigned for,” says Eva Blum-Dumontet. “It felt like he was on the side of the group that matters, regardless of whether they were actually going to make him gain voters or not. He was on the side of what seemed right.”

Blum-Dumontet is a 26-year-old EU citizen who has been in the UK for five years. She works as a researcher for a charity and lives in north-east London’s Walthamstow, where she is the local Labour party’s women’s officer.

She joined Labour just before the 2015 general election, and campaigned for Jeremy Corbyn during his leadership bid that year. She spent one and a half months that summer involved in his campaign, either phone banking at its headquarters at the Unite union building, or at campaign events, every other evening.

“When he suddenly rose out of nowhere, that was a really inspiring moment,” she recalls. “They were really keen on involving people who had recently arrived, which was good.”

“Aside from the EU, I share all of his views”

Blum-Dumontet voted for Corbyn in both of Labour’s leadership elections, and she joined Momentum as soon as it was set up following Corbyn winning the first one in 2015. But she left the group two months ago.

She is one of the roughly three million EU citizens living in the UK today whose fate is precarious following the EU referendum result. And she doesn’t feel Corbyn is sticking up for her interests.

Over the weekend, the Labour leader gave an interview that has upset some Labour-supporting EU migrants like her.

Corbyn reiterated his opposition to staying in the single market – a longstanding left-wing stance against free market dominance. He added that his immigration policy “would be a managed thing on the basis of the work required” rather than free movement, and, in condemning agencies exploiting migrant workers, he said:

“What there wouldn’t be is wholesale importation of underpaid workers from central Europe in order to destroy conditions, particularly in the construction industry. You prevent agencies recruiting wholescale workforces like that; you advertise for jobs in the locality first.”

Corbyn also emphasised that Labour would guarantee the rights of EU nationals to stay in Britain – including the right of family reunion – and that there would still be Europeans working here and vice versa. But, for some in his party who hail from Europe, the damage was done.

“I feel like he’s now trying to signal more and more that he’s not on all sides, he’s on the side of people who are just scared of migrants,” says Blum-Dumantet, who will nevertheless stay in the party to try and change the policy. “The idea that he is willing to engage in this whole dog-whistling immigration fear feeling is a bit disturbing.”

She stresses that, “aside from the EU, I share all of his views”, but adds:

“I feel like he’s chosen his socialist utopia – and I don’t mean that as a bad thing; I’m a socialist as well – over the reality of the concrete lives of three million people. For us, this is not about some abstract ideal, it’s about our lives, whether we can get jobs here, whether we can stay here. And for the sake of his ideal, he’s sacrificing that. That does feel like a betrayal.”

***

Other EU migrants who initially supported Corbyn also feel let down. Sabrina Huck, the London representative of Labour’s youth wing Young Labour, moved here from Germany in February 2014.

Having joined the party that year, she voted for Corbyn in the first leadership election, “particularly because of things like being an internationalist, talking about migrant solidarity”.

Huck, 26, who lives in south London and works in public affairs, began to change her mind about him she discovered his Eurosceptic views. “It’s kind of my fault because I didn’t really do the research properly on him, I guess!” she laughs.

“I understand the argument that we have put downward wage pressure on some jobs”

Now, she feels “disappointed” in Corbyn’s comments about “wholesale importation” of workers. “The way he articulates himself – it doesn’t sound like what I wanted to hear from a Labour leader, particularly somebody who’s been a proud internationalist, proud migrant rights campaigner,” she tells me.

“I think the way he was making his point about wages was laying the blame way too much with workers and not with the bosses, basically.”

Huck notes that Corbyn is against the single market because of his socialist view of the EU as a “capitalist club”, rather than concern about borders. But she feels he’s using “the immigration argument” to sound mainstream:

“I feel like he’s using it as an opportunity to further his own ideological goal of leaving the single market by tying that to an argument that goes down well with the Leave-voting public.”

***

However, other Labour-leaning EU migrants I speak to do not feel Corbyn’s genuine motive is to bring immigration down – and are more understanding of his comments.

“I appreciate and understand the argument that we have put downward wage pressure on some – particularly blue collar or poorer paid – jobs, that is the nature of mass migration,” says a 29-year-old Czech who works for the government (so wishes not to be named), and has lived here since 2014. She believes his comments were made to “appeal to the hard left and Ukip types”, and has left the Labour party. But she adds:

“I can understand how communities suffering through a decade of stagnant wage growth and austerity are looking for a scapegoat, easily found in the form of migrants – particularly in a country where minimum wage and labour protections are so weak legislatively, and so poorly enforced.”

She also is sceptical that a “mass deportation” of EU migrants from Britain is likely to happen. “The optics are too bad, at a minimum,” she says. “It would look too much like the 1930s. What would the government do? Put us all on boats back to Europe?”

“I kind of shrugged off those comments and they didn’t bother me massively”

“I think they [Labour] are feeling their way around the issue [of Brexit] and are listening for public sentiment,” says Agnes Pinteaux, a Hungarian-born 48-year-old who moved to Britain in 1998. “But reconciling their hardcore Brexit support, those who just hate immigrants, those who want ‘sovereignty’, and those who want Brexit ditched altogether is going to be impossible.”

“I think the debate about the ethics of free movement of labour is a legitimate one, but it has to be rooted in human rights and dignity,” says Anna Chowrow, a 29-year-old third sector financial manager who moved from Poland to Scotland in 2007, adding:

“I was thrilled when Jeremy Corbyn was first elected Labour leader, and I have admiration for his principled approach. [But] I am in disbelief that these comments – akin to ‘British jobs for British workers’ – were made by him. The dehumanising language of ‘importation’ and ‘destruction’ is beyond disappointing.”

***

Finding EU citizens in Britain who are entirely sympathetic to Corbyn’s comments is difficult. Forthcoming defenders of his stance are hard to come by, suggesting that it’s a minority view among Europeans living in Britain. But there are some who continue to back him.

“I like Jeremy Corbyn’s authenticity. He comes across as genuine and honest, and I agree with most of his ideas. Contrary to the majority of politicians, he’s actually not afraid of coming across as a human being,” says Teresa Ellhotka, 24, who moved to the UK from Austria in 2016 and works in PR.

“His ideas and visions are, in my opinion, still very progressive”

“I kind of shrugged off those comments and they didn’t bother me massively,” she says of Corbyn’s stance on EU migrants. “My mind about Jeremy Corbyn hasn’t changed drastically as his ideas and visions are, in my opinion, still very progressive and I admire that he is dedicated to change but in a human way, and doesn’t suggest fighting fire with fire – as many other politicians, and people, seem to do.”

Ellhotka admits to being “a little surprised, as I did not expect this stance from him at all”, but feels there has been “so much back-and-forth” on the issue that she’s stopped worrying about what politicians say.

“Nobody seems to know what exactly is going to happen anyway.” The only thing, perhaps, that all politicians – and their voters – can agree on.

Anoosh Chakelian is senior writer at the New Statesman.