The annual Independent on Sunday brass neck award is heading the way to something called the Debt Advisory Centre. The firm, which states that it is “currently helping 70,000 clients get out of debt”, used the Government’s announcement of a cap on payday lending rates to rail against high-cost credit. It stated that the number of its clients taking out payday loans and then falling into debt difficulty has doubled in the last two years.
Nothing surprising there, you probably think, but it got me thinking about the way in which payday lenders have become the consumer Aunt Sally – second only to energy companies – to have any old stick chucked at them.
In this instance, the firm behind this research – despite its name, which makes it sound like a charity – is in fact a peddler of individual voluntary arrangements.
These firms make a living from persuading people in debt to sign up to partial or full debt repayment programmes from which they earn commissions and fees.
IVAs have long been a bugbear of mine as they often don’t lead to people getting out of debt but simply forking out for a service they could get from a free debt charity.
Is this morally any better or worse than say a lender that offers you £100 for a month but expects you to repay £130 all set out clearly for you to see in black and white?
I have major issues with payday lending of course and support an overhaul of the sector, but it can’t be simply put out of business because frankly people have a right to access short-term credit.
And in all this noise and opprobrium being directed at payday lenders we mustn’t lose sight of what else is wrong in our financial services sector, such as IVA providers for instance.
Mortgage support withdrawn
The plug has been pulled by the Bank of England as far as its £80bn funding for lending scheme being used to provide money for household lending.
Instead the intention is now to turn the FLS super-tanker around and head towards more lending to business.
We definitely need this change because although the FLS has been a success – it is no coincidence that the economy started to grow when the scheme was unveiled – it has been very unbalanced.
Although fuelling household debt does make us feel better, it will also only suck in imports if our businesses can’t grow fast enough to meet renewed demand.
Businesses tell me on a daily basis that they are being starved of cash, and loans that are offered are done so with ridiculous strings attached, including owners with many years of healthy accounts being asked to put up their homes as collateral.
The big question, though, is whether the banks will now be as willing to tap the FLS to use for business lending as they were for mortgages and consumer credit. If it was such a great deal surely they’d have done it already?
In this one question could lie the sustainability of the economic recovery. However, the withdrawal of FLS will probably mean that banks have to compete for savers’ cash again and that should lead to more competitive rates.