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'Payday Lending' A Debate With SARF and Carl Packman

'Payday Lending' a debate with SARF and Carl Packman

The issue of debt is a buzzworthy one at the moment. The recent election in Greece, a country plagued by debt, saw anti-bailout party Syriza gain power, with their pledge to, "write down on most of the nominal value of debt, so that it becomes sustainable." Similarly, in January, Croatian Prime Minister Zoran Milanovic announced a new programme that will forgive the debt of 60,000 of the poorest Croatians. It is hoped that such moves will act both as a helping hand to those in need, and will also free up cash, helping to stimulate the economies with fresh spending.

The payday lending industry has experienced phenomenal growth across the west in the last 15 years, driven by the financial hardships of millions of people. Following an influx of lenders from the United States, the payday loan industry in the UK alone in 2012 had 1.8 million customers, taking out approximately 10.2 million loans, worth £2.8 billion, with the National Debt Line taking over 100 calls every day on the issue.

The facts and figures are staggering, and as Carl Packman purports in his new book, 'Payday Lending: Global Growth of the High-Cost Credit Market,' radical steps need to be taken to address the economic and social issues that underlie the rise of this often predatory industry, in order to prevent big lending companies from exploiting the financially vulnerable, or, the, 'Working Poor,’ people whose income falls below the poverty line.

Following a warm welcome by Amina Lone, Councillor for Hulme and Co-Director of SARF, an action-research think-tank that aims to tackle poverty in all its different forms, Packman delivered a brief and fascinating history of the payday lending industry before engaging with audience members in a Q&A style debate.

The US has always been regarded of as one of the founding homes of loansharking, the beginnings of which we can see in the form of salary lending in the early 1900's, a normal practice among workers who could not obtain bank accounts. Normal too became related instances of violence when people could not repay their debts.

As lenders found it increasingly harder to operate in the US because of new rules and restrictions, large industry groups were exported to the UK, taking advantage of the relaxed regulatory architecture in place. Today five of the seven biggest payday-loan companies in the UK are owned or controlled by a US company.

"As unemployment, underemployment and the spectre of zero-hour contracts are on the rise, those who are not fortunate enough to have a job have seen their finances ever-more compromised," said Packman. "From the bedroom tax, caps on the amount claimants can receive, and a real term cut after benefits are capped at 1 per cent, measured alongside a rising cost in living, government policy is disproportionately impacting the already very poor.
It is perhaps unsurprising, then, to find that the payday lending firms have benefited from such financial instability and uncertainty as workers find it increasingly more difficult to top up their declining wages with mainstream credit."

The success of payday lending has also come when wages are not keeping up with inflation, and banks are less willing to lend to vulnerable individuals. Central to the issue is the need for a regulatory safeguard, some form of protection for the public.

Packman argues that Credit Unions offer a viable alternative to payday loans and that community development finance models should be pioneered by the not-for-profit financial co-operatives. However, Credit Union employees assert that they simply do not have the capital to lend to make a significant difference to the debt crisis and that they face constant criticism because of their own regulations and restrictions.

A great victory for those who rally against the industry, the cost of payday loans has recently been capped by the Financial Conduct Authority (FCA), which means in effect that payday loan rates will be capped at 0.8% per day of the amount borrowed, and no-one will have to pay back more than twice the amount they initially borrowed.

With many lenders already shutting up shop, it is hoped that the new regulations will make loans fairer and more manageable for customers, however it is too early yet to determine how successful they have been.