Politicians should look closer to home before bashing the payday lenders
July was a good month for politicians who like nothing better than bashing the payday lenders. Not only did the Financial Conduct Authority introduce new regulations to limit the number of times a loan can be rolled over, proposals were also announced to cap the cost of a payday loan. But why are politicians and the press so quick to vilify the payday industry?
Amidst the fanfare of July’s regulatory activity, the press was chock-full of choice phrases such as irresponsible lending and preying on the vulnerable to further denigrate the payday loans industry. Clearly this is nothing new, in fact, even as far back as the medieval times, lending at interest was met with much condemnation.
But there is more than just a little bit of political opportunism at play here. The payday lenders have become the politicians scapegoat for the spiraling level of consumer debt in the UK, despite this being very much a governmental problem.
The political agenda
In a Financial Conduct Authority consultation paper discussed in 2013, the widely understood and commonly used term payday lending was rejected and replaced by the barbed phrase high-cost short-term credit. However, high-cost lending from banks and other high street institutions did not fall under this definition. This is despite the fact that overdraft fees and late-payment credit card charges often exceed those applied by payday lenders like Wonga.
The crux of the new regulations and proposed price caps is to protect individuals from themselves, despite the general satisfaction those that borrow from payday lenders have with the product and service they receive.
Targeting the poor
One of the most common criticisms aimed at payday loans is that they target the poor. The payday lender is not the first to be labelled in such a way. In the past, a ban on smoking in public places, calls for a minimum price on alcohol and government threats to tax or impose regulation on the soft drinks and processed foods industries have all been sold as a method of protecting the poor from themselves.
We are all aware of the elitism that thrives in the political classes, and these measures highlight the desire to save the working-classes from the habits the privileged few deem to be unhealthy and undesirable. While education and awareness would benefit all, taxation and regulation are instead imposed to make money from those in poverty. And therein lies the hypocrisy.
However, no matter how much negative press or political slander the payday lenders receive, the industry continues to be successful. This is due to the simple, quick and convenient nature of the product, giving people access to relatively small amounts of money at short notice. Given the state of the current economy, the rising costs of living and the stagnating wages, this is a service many UK consumers need.
Missing the point
The real issue politicians should be concentrating on is why so many people are resorting to such credit sources in the first place. To patronize the working-classes by suggesting payday loan marketing campaigns are enough to persuade consumers who might not otherwise need a payday loan to access this service is clearly insulting.
Perhaps if the government was not so preoccupied with laying the blame for their failings elsewhere, they’d see that the reason payday loans were so popular was the proliferation of low paid jobs, welfare cuts, the rising cost of living and stagnant wages.
It is not interest rate caps or stricter lending criteria that will ever diminish the demand for payday loans. It is only by focusing on the root cause of the problem and improving the economic health of the country with better paying jobs, increased wages and an improved welfare state which will reduce the need for this legitimate short-term credit service.
Have you taken out a payday loan to help make ends meet? Were any other credit options available to you? What would have been the consequences if you were not able to access credit? Please leave your thoughts in the comments section below.
Harold Marshall is a UK finance blogger and small business owner who writes articles for some of the UK’s most authoritative websites. When heís not busy at his PC, Harold can be found brewing beer in his very own executive shed.