Five years on from when payday lending started to really gear up, finally we are getting some real action to curb the industry's undoubted excesses. The Financial Conduct Authority has published a list of rules it expects payday lenders to live by, and reading through them I think they are fair and strike the right balance between protecting consumers and allowing a free market to operate.
There has been a lot of hysterical commentary around payday lending and I have always tried to tread a middle ground. Payday loans do meet a real need amongst large swathes of the population for short-term cash. What is more, the high APRs are at least on an initial small size loan a little bit of a red herring. If I was to lend to you for instance £100 without security and ask that you repay £120 in a week's time you may not think that too bad a deal as we don't know each other from Adam. However the APR on such a loan would be in four-figure territory.
But where my concerns have always been with payday are over advertising that has been geared to the young, the emphasis that these are easy-to-arrange loans and the practice of rolling over – people being encouraged to take out a new loan to effectively cover the interest on an existing one. There is also an ongoing concern about some of the companies involved in the industry. You or I could get ourselves a credit licence, behave appallingly to customers and it could take up to two years for us to be closed down. There are of course dozens of legitimate lenders too but the point is it is too easy to set up in the payday lending business and the actions of the worst influence the perception of the majority.
What the FCA proposes though does meet many of these concerns with a limit on times a loan can be rolled over – the lenders wanted a limit of three, debt charities one, the FCA decided on two – and also there is a curbing of the ability of lenders to automatically take money from borrowers' accounts, something which can really send an individual's finances spiralling. There is also a pledge to monitor firms' advertising and I think this is a crucial area where the FCA can really make a difference. We need an end to promises of quick decisions on loans and the idea that borrowing money can be a fun thing to do. These are only the first steps and they have taken too long, but I believe we are moving in the right direction over payday.
Don't shut out US prospects
It seems difficult to believe that a country as rich and powerful as the US can suffer such a thing as a government shutdown but then again you'd have thought they'd have managed the dreadful aftermath of Hurricane Katrina much better than they did. Nevertheless, a government shutdown is exactly what has been happening in the US.
Now if such a thing were to happen in the UK I can barely imagine the consequences in the US, though they are rather taking it in their stride, but should investors in the world's biggest economy also be so sanguine?
Actually they ought to be, because to paraphrase ex-US President Calvin Coolidge "America's business is business, it certainly isn't government". It is a country where the private sector both dominates and provides.
The outlook for US corporate is actually rosy at present and, although much of the tech sector is overvalued, in other key parts of the economythe engine of the US is revving up and there is a great deal of value out there for investors.