The government’s failure to regulate loan companies is leading to the exploitation of vulnerable, cash-strapped people
Neither a borrower nor a lender be – but for many staying out of debt is becoming nigh on impossible. Who knows this the best? The legal loan sharks profiting from the austerity that Britain is currently experiencing. The Consumer Finance Association boasts that it has “intelligent financially-savvy consumers who are making critical, proactive and positive financial decisions every day to help them live within their means whilst coping with the varied challenges of the post-credit crunch era.”
The Citizens Advice Bureau tells a very different story. They deal with the fallout of a country where companies offering loans with rates of 4,000% cover every town centre and dominate internet and mobile phone advertising. Their experience is of an “out-of-control industry”, that has been lending to those under 18, people with mental health issues and even people who were drunk at the time of application. They speak of lenders not doing basic credit checks, and the harassment of borrowers to extend loans and repay quickly.
In March, the Office of Fair Trading announced it was warning the top 50 payday lenders about their conduct, with the threat they could remove their trading licence. Nearly four months on just two have upped sticks. The OFT has little power to challenge this, and as one closes down more open up, attracted by Britain’s lax regulation and the profits to be made. The new Financial Conduct Authority freely admits it will take several years before new tougher powers could bring this industry to heel. Despite review after review, recommendation after recommendation, this industry continues to fall out of the grip of regulators – and through its complacency our government is helping them bleed Britain dry.
Not everyone who borrows using a payday loan gets into difficulties, but enough do as a result of the terms of the loan that the industry is now making billions. Despite paying off an average of £355 in 2011, each household still has around £7,900 in unsecured debt – leaving UK consumers among the most indebted in the world. We are a nation living not just on debt, but debts that cause debt. Three million people missed a credit card payment in the last year and two million a council tax payment..
This pales into comparison against the consequences of rolling over a payday loan – little wonder some customers can start with a £100 loan and end up owing £17,000. R3, the trade body for insolvency professionals, predict that five million people will consider using such credit in 2013.
Yet one in three of these loans are being used to pay off another payday loan – showing how using this credit often creates a spiral of debt. Many know such loans are toxic but have little alternative. Research by Which? shows half of all borrowers who have taken out a payday loan knew they couldn’t repay – with 57% missing payments as a result.
The failure of the government to act speaks volumes about their understanding of what really matters for the public. For three years many have been trying to warn them that they needed to protect cash-strapped Brits from these companies. That we should learn from other countries, who cap the costs of credit and require real-time credit checking, so limiting irresponsible behaviour within this industry. Even as the government continue to resist such measures, they protest they are getting tough. Those struggling with debts and harassment from loan companies will know such words ring hollow.