Editorial: The high price of payday loans

It is better to have lending in the legal economy than drive it into the criminal underworld

Share
Related Topics

Payday lenders are bad and the rates they charge should be capped. That could have been the shortest leading article published by this newspaper, a half-tweet of condemnation and opinion based on the assumption that lending money to people with poor credit histories at extortionate rates of interest is wrong. Unfortunately, the problem of unsecured lending is more complicated than that.

In many countries, including France, Germany, Australia and Japan, and in many states in the US and provinces in Canada, interest rates are capped at maximums, such as 36 or 48 per cent a year. But this means that companies cease to offer loans to risky customers, who are then forced into the hands of illegal loan sharks, often run by organised crime. It is better to have payday lending in the legal economy, where it can at least be regulated, than to drive it into the criminal underworld.

However, as Stella Creasy, the Labour MP who has campaigned tenaciously against irresponsible lending, said: "The problems with a rate cap do not mean that we cannot act. Rather, we must work harder and learn from others how best to act." She has proposed a cap on total repayments to try to put a brake on compound interest and rollover debts that end up many times the size of the original loan, without choking off the legitimate market for emergency short-term borrowing.

That should, however, be just the start of a programme to limit abuses in the payday-loan market. Some of these should be addressed by the investigation launched last week by the Competition Commission. Its main task is to look at unfair competitive practices that are suspected of giving borrowers a bad deal, such as confusing information about interest rates and lenders making it hard for borrowers to switch to a rival company.

But there are many more reforms that are needed, which should start with the underlying causes of problem borrowing. Advertising should be restricted, on the same principles that have been applied to advertising alcohol and tobacco. Adverts for payday loans could, for example, be required to carry information about where to get debt advice. Payday lenders could be required to pay a levy to fund helplines and services to help with addictive and self-destructive behaviour that contributes to indebtedness, and to support credit unions.

The evidence that payday lending is a problem has been growing in recent years – and we report the latest alarming findings today: that a million households took out a payday loan in the previous month. But the Government's response has been slow and defeatist.

Tomorrow, finally, Jo Swinson, the Liberal Democrat consumer affairs minister, is chairing a meeting of lenders and consumer organisations. Surprisingly, she has failed to invite Ms Creasy to attend. Ms Creasy has made no protest, but, as we report today, Ms Swinson's view is believed to be that Ms Creasy's presence might "inhibit a full and frank discussion between all sides". If this is the case, the minister is guilty of cowardly and counter-productive partisanship. If Ms Creasy were at the meeting, any agreement that might be reached would have infinitely greater credibility; and if she did not agree with the conclusions, they would at least have been tested in battle.

The problem of payday lending is too important for such pettiness, and too complex to exclude any knowledgeable person from helping to draw up the best policies to minimise harm.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Guru Careers: Trainer / IT Trainer

£30 to £32k : Guru Careers: We are seeking a Trainer / IT Trainer to join an a...

Recruitment Genius: Project / Account Manager and IT Support

£18000 - £25000 per annum: Recruitment Genius: This world leader in Online Pro...

Recruitment Genius: Part Time Bookkeeper / Office Administrator

£17550 - £19500 per annum: Recruitment Genius: This is a standalone role based...

Recruitment Genius: Junior Web Developer

£16000 - £20000 per annum: Recruitment Genius: This company is a world leader ...

Day In a Page

Read Next
From left: Yvette Cooper, Jeremy Corbyn, Liz Kendall and Andy Burnham at a televised Labour leadership debate  

Jeremy Corbyn wouldn't be so far ahead in the Labour leadership race if his rivals weren't so awful

Ash Burt
 

Giving children 'iRights' to delete what they put online sends the wrong moral message

Joe Rivers
Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Attwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works
Twitter accused of 'Facebookisation' over plans to overhaul reverse-chronological timeline

Twitter accused of 'Facebookisation'

Facebook exasperates its users by deciding which posts they can and can’t see. So why has Twitter announced plans to do the same?
Jane Birkin asks Hermès to rename bag - but what else could the fashion house call it?

Jane Birkin asks Hermès to rename bag

The star was shocked by a Peta investigation into the exotic skins trade
10 best waterproof mascaras

Whatever the weather: 10 best waterproof mascaras

We found lash-enhancing beauties that won’t budge no matter what you throw at them
Diego Costa biography: Chelsea striker's route to the top - from those who shared his journey

Diego Costa: I go to war. You come with me...

Chelsea's rampaging striker had to fight his way from a poor city in Brazil to life at the top of the Premier League. A new book speaks to those who shared his journey
Ashes 2015: England show the mettle to strike back hard in third Test

England show the mettle to strike back hard in third Test

The biggest problem facing them in Birmingham was the recovery of the zeitgeist that drained so quickly under the weight of Australian runs at Lord's, says Kevin Garside
Women's Open 2015: Charley Hull - 'I know I'm a good golfer but I'm also just a person'

Charley Hull: 'I know I'm a good golfer but I'm also just a person'

British teen keeps her feet on ground ahead of Women's Open
Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'