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
iJobs Job Widget
iJobs General

Recruitment Genius: 3rd Line Virtualisation, Windows & Server Engineer

£40000 - £47000 per annum: Recruitment Genius: A 3rd Line Virtualisation / Sto...

Recruitment Genius: Refrigeration and Air Conditioning Service Engineer

£26000 - £35000 per annum: Recruitment Genius: A successful national service f...

Recruitment Genius: Business Development Executive / Sales - OTE £25,000

£15000 - £25000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Sales Administrator - Fixed Term Contract

£17500 - £20000 per annum: Recruitment Genius: We currently require an experie...

Day In a Page

Read Next
Andy Coulson  

Andy Coulson: With former News of the World editor cleared of perjury charges, what will he do next?

James Cusick James Cusick
Jack Warner  

Fifa corruption: Strip Qatar of the World Cup? Not likely

Tom Peck
Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
Fifa corruption: Strip Qatar of the World Cup? Not likely

Strip Qatar of the World Cup? Not likely

But if a real smoking gun is found, that might change things, says Tom Peck
Twenty two years later Jurassic Park series faces questions over accuracy of the fictional dinosaurs in it

Tyrannosaurus wrecked?

Twenty two years on, Jurassic Park faces questions over accuracy
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
Genes greatly influence when and how many babies a woman will have, study finds

Mother’s genes play key role in decision to start a family

Study's findings suggest that human fertility is still evolving
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
England can win the Ashes – and Elvis Presley will present the urn

England can win the Ashes – and Elvis will present the urn

In their last five Test, they have lost two and drawn two and defeated an India side last summer who thought that turning up was competing, says Stephen Brenkley
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)