Loan sharks and the payday loan industry
To take a browse at household debt today is enough to give most a nosebleed.
In February 2011, it stood at £1.454 trillion, which is projected to rise to £2.1 trillion by 2015.
Though the UK as a whole is said to have paid down on average around £355 of its overall debt in 2011, according to Price Coopers Waterhouse (PwC), each household continues to be saddled with around £7,900 in unsecured debt, which most worryingly is among the most indebted in the world.
But this isn't a simple case of the poor living beyond their means.
Despite the massive expansion in consumer credit that took place during the 1990s, in 2002 over one in five adults, or 7.8 million people, were denied access to mainstream sources of credit.
13.5 million Britons living in low-income households are disproportionately represented by the underbanked.
Other comparisons to Europe should give policymakers pause. Around 1.75 million UK adults go without a transactional bank account, whereas in France that figure is between 500,000 and 1 million, and in Germany a solid 500,000.
In the UK, there are 7.7 million accounts without credit facilities - nearly four times the number of Germany (two million at the end of 2006) and France (2.1 million in 2008), while nine million people cannot access credit from mainstream banks in the UK, as opposed to around 2.5 million in Germany and between 2.5 million and 4.1 million in France.
But even given the lack of mainstream banking resources for so many, some economists still don't believe that the payday lending industry is a threat. Tim Harford, in an article asking whether the industry is really so immoral, notes that payday lending was up from £100 million in 2004 to £1.7 billion in 2010 – rather modest, he argues.
But for a relatively new product that’s having another growth spurt due to the financial crash of 2007-8, it is considerable. Looked at from the share of the market is one thing, but looked at another way - in 2007 the market had grown from £100 million to £500 million, and in 2010 had increased some 200 per cent.
And of course - the industry is geared very much towards those who are feeling the pinch during these rocky financial climbs.
Joanna Elson, chief executive of the Money Advice Trust, pointed out at the start of 2012 that the growth of payday lending had caused an increase in the number of calls to its debt counselling service, saying "Just two years ago National Debtline was receiving around 150 calls per month from people with payday loans – that figure has now ballooned to 1,100.”
The credit boom was a revolution that the government decided to champion rather than commit to fairer wages and reductions in the cost of living. But a great many people were excluded from that revolution.
Now that the economy is flatlining, with low growth, and a further deterioration in the job market, the credit card is said to be having a mid-life crisis and predatory payday lenders are emerging as winners in this bleak financial landscape.
Banning them would deliver a gift to baseball bat wielding illegal loan sharks, but raising caps on the total amount they can charge people would be a start – but the government doesn’t seem to show the political will for that.
What we can do is put pressure on our elected representatives to support movement towards better and more sensible regulation on the payday loan industry, and hope to bring out a cross-party consensus on the negative effect they are having on too many people’s personal finances.
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