In our haste to condemn we tend to gloss over an inconvenient truth: that they’re gorging on huge demand created by rising household bills, low wage inflation, reduced working hours, restricted access to traditional credit and welfare reforms.
This isn’t an argument against a crackdown on the industry. Far from it. It’s a scourge that needs tackling for many reasons, not least their extortionate rollover charges, aggressive debt collection and exploitation of people in financial hardship.
But the issue isn’t as black and white as many would have it. Three in ten payday loan customers would take one out again, according to a survey by USwitch, while a fifth said their loan helped them out of financial difficulties.
That’s how they are supposed to work, as a practical solution to short-term problems. It’s in the long term that problems occur, when debts are rolled over or loans given without affordability assessments.
So a crackdown on payday lenders must find a balance or risk making matters worse. It starts with regulation, including a ban on rollover contracts, an interest rate cap, a limit on the number of loans per person, advertising restrictions and greater scrutiny of debt collection.
The first three of those measures are working in Canada and would also be adopted in an independent Scotland, Alex Salmond claimed last week. His comments represented something of a change of tack – Enterprise Minister Fergus Ewing previously responded to calls for a campaign against payday loans by insisting they were “fair and transparent”.
Regulation is only part of the answer, however. Responsibility lies with the banks too. Sub-prime mortgage lending is making a discreet comeback and banks are using the Funding for Lending Scheme to fatten their margins. With state-backed Lloyds and Royal Bank of Scotland returning to profit, now is the time to insist they make short-term loans available at rates undercutting payday lenders.
But if there’s one thing that payday lenders fear, it’s economic growth. Not the current illusory growth, but the variety that boosts those on low and medium incomes. Yet real wages are plummeting and benefit cuts are forcing more people to take out payday loans just to pay for essentials.
If they’re effectively regulated and harnessed, payday lenders have a role to play. If they’re not, the long-term consequences for struggling households will be dire and irreparable. If Salmond’s comments can be taken seriously, it would seem he’s finally on the right track.