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Think tank calls for action against rip-off payday lenders

*** Embargoed until 0.00am Thursday 11 July 2013 ***

Think tank calls for action against rip-off payday lenders

In his new paper released today [Thursday 11 July] for the Centre for Labour and Social Studies, credit market expert Carl Packman calls for urgent action to protect the most vulnerable, showing how deregulation has led to the alarming growth of payday lenders.

Boom-time for legal loan sharks: How deregulation, market failure and a crisis in wages has led to the rise of payday lenders” shows that:

  • The payday lending industry was worth just over £100 million in 2004 and is now somewhere between £2-4 billion today. 
  • Over a million people took out payday loans in 2012.
  • The bill for outstanding personal debt reached £158 billion in February 2013 under the Government’s watch.
  • The average payday loan taken out grew from £200 in March 2012 to £335 in September 2012.
  • Under 25s were the largest group to be borrowing from payday lenders in September 2012 (in March 2012 they had been the lowest).

Carl Packman’s paper has been released ahead of the Second Reading of Paul Blomfield MP’s Private Members Bill in the House of Commons tomorrow [Friday]. The High Cost Credit Bill will protect borrowers from rip-off lenders by: regulating advertising; requiring lenders to check whether loans are affordable; limiting excessive charges; and forcing lenders to refer those in financial difficulty for free independent debt advice.

Self-regulated payday lenders have exploded onto the consumer credit scene since the recession and financially vulnerable individuals are now starting to feel the impact of this new type of lender on the high street. Stagnating and falling real wages, precarious employment and increasing costs of living are compounding to create dangerous personal financial insecurity.

The paper calls for:

  • The end of self-regulation for payday lenders;
  • A cap on the total cost of credit and the amount of times a person can take out loans to service existing loans;
  • Provision for tailored debt advice; and
  • Restrictions on planning permission for payday lenders on the high street.

Carl Packman said:

“Many of these loans are being taken out to purchase food and other essentials or pay bills – not the outcome of financial imprudence that some would have you believe. Workers are finding it increasingly difficult to top up their declining wages with mainstream credit and because of that personal debt is rising to severe levels.

The very fact that people are having to borrow money for essentials, food, bills and housing, suggests an urgent need for government to act quickly on assessing the causes of such dangerous rises in personal debt, and what can be done to regulate the industry itself to make it more responsible”

ENDS

Notes to Editors:
The author of this paper is available for interviews and comments. For further information, interviews or media requests please contact Rachel Yates on rachel.yates@classonline.org.uk or 020 7611 2569.
Website: http://www.classonline.org.uk/ Twitter: @classthinktank

1. The Centre for Labour and Social Studies (Class) is a new think tank established in 2012 to act as a centre for left debate and discussion and has the growing support of a number of trade unions including ASLEF, CWU, GFTU, GMB, NUT, PCS, TSSA, UCATT and Unite the Union. Originating in the labour movement, Class is working with a broad coalition of supporters, academics and experts to develop and advance alternative policies for today. http://www.classonline.org.uk/about/panel

2. A copy of ‘Boom-time for legal loan sharks: How deregulation, market failure and a crisis in wages has led to the rise of payday lenders’  is attached and more information can be found here: http://classonline.org.uk/docs/2013.07_boom-time_for_legal_loan_sharks.pdf (released) and here http://www.classonline.org.uk/pubs/item/boom-time-for-legal-loan-sharks (embargoed)

Carl Packman’s paper shows how payday lending originated in the US, but after being squeezed out by urgent regulation and usury laws, the industry set up shop in the UK where markets were entrusted to run themselves, with little regulation from the state, and where prices at which lenders could sell credit were not restricted. With light-touch regulation and stagnating wages, the payday lending industry has boomed. 

This paper calls for the government to set a cap on the cost of credit and recommends that the government give the newly created Financial Conduct Authority (FCA) the power to do this in November 2013, not April 2014 which it's currently set to do. An end to self-regulation, the introduction of a reasonable rollover limit, a restriction on the amount of times a person can take out loans in order to service the interest of existing or “live” loans and an obligation on all lenders to put all credit transactions through a credit reference agency are some of the other strong recommendations in this report.

3. The author of the paper:

Carl Packman is a writer, researcher and blogger. Carl is the author of the book Loan Sharks: The Rise and Rise of Payday Lending published in 2012 by Searching Finance. He has written for many publications including the Guardian, New Statesman, Jewish Chronicle and Credit Today Magazine and has been interviewed on payday lending by the BBC, Sky News, LBC and Channel 4. His next book, on the global growth of the high cost credit market, will be published by Palgrave MacMillan in 2014.

http://classonline.org.uk/about/authors/carl-packman 

4. Paul Blomfield MP’s Private Members Bill - High Cost Credit Bill

The Bill aims to tackle the problems being caused by payday lenders in a number of ways: by regulating their advertising and ensuring clear information is provided on the cost of loans; requiring lenders to undertake affordability checks and limiting excessive charges; and introducing measures to protect borrowers in difficulty by requiring lenders to refer them to free independent debt advice.

More information here: http://services.parliament.uk/bills/2013-14/highcostcredit.html and here: http://www.paulblomfield.co.uk/fileadmin/downloads/High_Cost_Credit_PMB_-website_copy_03.pdf

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