APOLOGIES are in order, it seems, to those nice payday lenders that we accused of being exploitative, money-grabbing, rip-off merchants. Because it turns out that all along they were concerned only for those poor people they were helping out.
That’s one conclusion you could reach from an apparently principled argument last week that a crackdown on payday lenders has simply let the really bad people muscle in on their territory.
The Consumer Finance Association (CFA), which represents around 70 per cent of payday lenders, set out what it called an “in-depth analysis” of the short-term loan market and the effect of the regulator’s measures.
The Financial Conduct Authority (FCA) last year introduced new rules on affordability checks and limited borrowers to two “rollover” loans, while a cap on payday loan charges came into force in January. The whole package had the effect of forcing all but a relative handful of payday lenders out of business.
But it’s gone too far, according to the CFA report, which it says is “an attempt to educate all those who continue to call for further restrictions on lenders without considering the consequences for millions of families”.
So that’s what payday lenders were all about. Silly me. I thought that when payday lenders were pushing people’s noses into the dirt with punitive extra charges, targeting the mentally ill, driving people even deeper into financial difficulties, pestering debtors to the brink of suicide and using bullying collection tactics, they were being exploitative. They were, the CFA now tells us, merely helping people out and providing the sustainable, ethical form of short-term credit that was needed.
Yet while the CFA’s latest assertion that the payday lending restrictions have led to more people using illegal loan sharks was widely reported, the trade body provide no evidence to support it. In fact, while the argument may sound logical, there’s no real evidence of a rise in illegal loans since the payday lending crackdown began.
The CFA brilliantly argues that the attacks on payday lenders had gone too far and didn’t recognise “the huge improvements in lending and accept that we have a highly regulated, legitimate market”.
And that would be why? At the risk of stating the obvious, the reason the authorities had no choice but to act was because payday lenders failed so miserably in their attempt at self-regulation.
There is an argument to be had about finding the right balance and ensuring that affordable short-term credit is available to those who need it. There’s a discussion to be had about the role that decent payday lenders can play in meeting that demand and how to prevent people from turning to illegal sources. Westminster and Holyrood have rested on their laurels since the FCA took over the consumer credit market, but they need to act.
There’s no doubt that the Tory attack on social security (sorry, “benefits”) leaves even more people exposed to unregulated forms of credit and that better short-term credit options are desperately needed.
That case, however, isn’t one that can be made with any credibility by the payday lending industry. They had plenty of chances to get their house in order – and they did nothing of the sort.