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.
 

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.