Carl Packman, a writer on the growth of payday lending introduced a discussion on Wednesday under the auspices of Manchester’s Social Action Research Foundation (SARF)
Ironically Carl’s recent book (“Payday Lending: Global Growth of the High‐Cost Credit Market”) costs £45, although it will soon be available as a paperback. Not that I can talk, another forthcoming book on debt in which I have a chapter will cost more (although it is longer). Knowledge (power) is kept out of the hands of the indebted by the global publishing industry.
Carl laid out the basic facts. The growth of payday lending – readily available, unsecured, high interest lending to people who are not “good risks” – can be attributed to a conjuncture of the following:
deregulation of the finance industry
falling incomes and increase in financial distress and insecurity
the curtailment of emergency finance from the welfare system
the clamp-down on state benefits, including the use of sanctions and the bedroom tax.
The payday lending “industry” has grown greatly in the last decade, and a critical feature has been the arrival of US firms, seeking new markets and targeting what was described as poor neighbourhoods that would never see a tourist.
A number of key points emerged both from the talk and the ensuing discussion:
People who take payday loans mostly use them for meeting ordinary everyday expenses.
Popular stereotypes about people taking loans, as irresponsible and profligate, have no basis. Indeed as Mike Wild pointed out, the jibe that they are used to buy “flat screen t.v.’s” and smartphones ignores that t.v. (all flat screen now) is a cheap source of entertainment and smartphones are an effective way of accessing internet-based services, applying for jobs (hence avoiding benefit sanctions).
Credit unions could be an alternative, but a) they don’t have the capacity, b) they can’t compete with payday lenders on speed of loan, and c) they actually try to encourage people to limit borrowing and find alternatives. They also have their interest rates capped – a good thing but that means they can’t easily expand.
Steady State Manchester, in our In Place of Growth paper of 2012, called for initiatives in this region bringing together the need for affordable credit (for people in financial distress as well as for small and green enterprises), the need for a safe, ethical home for local people’s savings, and the need for investment in the replacement economy of re-localised, prosperity re-circulating, and environment-friendly business initiatives. That need has not gone away, yet there is a general lack of imagination and a lack of political will to forge something like that – authentic locally focussed stakeholder or community banks that service our communities, building genuine prosperity. The New Economic Foundation‘s (and Justin Welby‘s) proposal on the Royal Bank of Scotland suggests one way this could be brought into being. They suggest that this 84% government owned bank (with a notoriously bad ethical reputation) should be broken up into publicly owned (but independently governed) local banks that, like the German Sparkassen, service the local economy (see also this report from New Weather Institute). Adding the mandate to provide responsible and affordable credit to help people deal with the fluctuations in their incomes and outgoings (and get out of long term debt) would be a feasible addition that could help put an end to the highly profitable, predatory Wongas and their ilk.
Other things are needed, and as Johnna Montgomerie and colleagues note in their excellent report, “The Politics of Indebtedness in the UK” (to which Carl Packham contributed), household debt restructuring is The missing piece of the financial restructuring puzzle (for a summary of the argument see this blog post). As Carl Packman noted, this is just what the government of Croatia is doing, writing off the debts of those below the poverty line, while the new Syriza government of Greece plans something similar, in tandem with its more well-known external work to restructure the country’s external debt.
Mark H Burton
Steady State Manchester collective