Solidarity spoke to Carl Packman, the author of Loan Sharks: The Rise and Rise of Payday Lending, about the growth of payday loan companies and how working-class people can fight them.
The value of the payday loan market has increased massively over the past decade. In 2004, it was worth around £100 million. Now it’s worth between £2-4 billion.
That increase has taken place at the same time as we’ve seen wages stagnate to 2003 levels, and massive unemployment and underemployment.
High-street banks are increasingly risk-averse, meaning they’re less likely to give credit or overdraft accounts. That allows payday loan companies to swoop in. According to the Financial Times, 1.2 million people took out a payday loan in Britain in 2012.
Payday loan companies’ transparency are not upfront about their means of debt collection and many hidden costs and charges.
A type of automatic payment setup called the Continuous Payment Authority is used by payday lenders to take money directly out of your account. You sign over that right when you take out a payday loan, but that’s rarely made clear. Lenders have to be upfront about their APRs, which are usually around 4,000%, but are often far less clear about other charges, such as late payment fees.
The Office of Fair Trading has guidelines that should prevent this, but they aren’t enforced. The OFT’s 2010 document “Irresponsible Lending Guidance” sets down guidelines about making rigorous affordability assessments, which means lenders should check what payments someone can actually afford before they let them take out credit. But this sort of thing isn’t done.
Lenders want you to come back, and greater transparency would be a disincentive.
Payday lenders don’t compete on price, they compete on speed — i.e., how quickly you as a borrower can access the cash you’re borrowing. So if they can cut corners, such as only performing perfunctory affordability assessments, they can get the edge on their competitors.
The OFT has the power to withdraw a lender’s credit license if guidelines aren’t met, but it’s very reluctant to enforce its own guidelines. That’s partially a capacity issue; the consumer credit department within the OFT is very small, and the process of withdrawing a license can be very expensive, so they’re unwilling to do it. Greater investment in the area is needed to allow more rigorous enforcement of OFT guidelines.
There are some people active in campaigning around this.
They’ve done some work in local communities raising awareness about other credit options apart from payday lenders, including local shops prepared to extend low-cost credit to consumers. Activists have also campaigned for local authority credit unions to be given high-street shopfront.
Visibility is a big issue. Pawnbrokers and payday lenders, have very eye-catching, visible presences on high street, whereas local authority or community credit unions are much harder to access.
Campaigners have leafleted outside shops to raise awareness of payday lenders’ lack of transparency and to promote alternative sources of credit. In one instance, persistent actions outside a shop pressured the franchise manager into advertising a local credit union in the shop itself.
Campaigning against payday lenders must go hand-in-hand with campaigning for increased benefits and living wage. There are some Tories who are onside against particular payday lenders, but they don’t want to tackle the issues at the root of the problem.
We have to take on payday lenders as an immediate issue, but we can’t forget about the big banks or the global financial institutions of capitalism.