We posted here last week about our new report on whether it might be possible to build an organisation to take on the payday lenders and, as the Archbishop of Canterbury put it so graphically, drive them out of business.
Whatever the solution is, the problem of corrosive high cost/short term lending is increasingly obvious. And not because there is no market. It covers a market that was once served by the big banks at one end and the loan sharks at the other.
It is a problem not because clients of payday loan companies are being given loans. It is a problem because the expansion plans of the companies require those clients to get into difficulties, to roll over their loans, and to continue to leach money in ever greater amounts to the companies.
The implications for the individuals are bad enough. It is also a disastrous scenario for the local economies of the poorest neighbourhoods.
But it does beg the question of what a reasonable political platform ought to be on payday lenders, especially now that the government has agreed to regulate them and cap their total charges.
It is a difficult question because the credit union movement, important though it is, is only geared up in a few places to compete. There also needs to be some institutions covering that market or the loan sharks with the baseball bats will be back. So what should your average political party do, say the Liberal Democrats, for example?
This is what should probably go in their manifesto:.
1. Real time regulation. This is the way it is organised in most US states, mainly by a company called Veritec. Without that real time regulation, clients are able to take out multiple loans with different companies and the loan companies are able to interpret regulations as they like – some already don’t count the first loan rollover.
2. Gear up the credit unions. The government is already gearing up the credit unions, but this needs to concentrate on the biggest ones like London Mutual, which between them might be able to organise a short-term loan portal that is easy to access and use – and does not destroy lives.
3. Experiment with crowdfund platforms. We need to experiment with a range of different social enterprise or crowdfunding models, for different segments of the market, especially with linked debt advice services for those in difficulties – and with the overall objective of getting people out of long-term debt, not digging them further in.
4. Offer welfare loans through the welfare system. The old social fund loans for furniture were provided through the benefits system. There is an opportunity here for the welfare system to provide emergency loans, at reasonable cost, and to take payments out of benefits – perhaps in partnership with the biggest credit unions.
5. Get the big banks to build the infrastructure. See our other report about how the big banks need to help pay for a new local banking infrastructure that is capable of offering services to those people and places they no longer want to serve.
6. Plug the demographic gaps. We now have detailed postcode lending data from the big banks and it needs to be used to find the places which are suffering the most from loan sharks or payday lenders – nurses and service personnel for example – and to prioritise alternatives there.