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Jo Swinson: payday loans aren’t the only option

UK money

In this guest post, Consumer Affairs Minister Jo Swinson explains how the government is working to clean up the payday loans industry and asks – what other alternatives are there to payday lenders?

We’re all aware that times are tough, and people are having to tighten their purse strings. I understand how people can feel when they’re struggling with money problems, but one of the worrying trends to come out of this period has been the rise in payday lending. According to a Which? survey, around one million households take out payday loans each month.

The harsh reality is that many people are taking out payday loans when they are not right for them, which is why the government and regulators are taking tough action to clean up the industry. I do think we have to delve into the root causes of these problems, which is why we want to hear your opinions on payday lending.

Why not turn to credit unions?

We know that one issue is definitely access to credit. People understandably get frustrated by banks refusing them loans or credit cards and they may well feel tempted to try payday loans, so we have to make sure that people have better options.

I have always emphasised that people struggling with money should get free debt advice before they even think of getting a loan. Payday lenders should not be the first port of call. I know from talking to people who work in Citizens Advice that once people pick up that phone and make that first call for help, they say it’s like a weight has been lifted from their mind. There is a lot of help out there, but what can people do if don’t want to go to a payday lender? As an answer I’d like to point to our efforts to set up more credit unions.

Credit unions are not-for-profit organisations that can lend money, and because these are owned by the people who save and borrow through them, they are more responsible and the benefits go both ways. The idea is that because everyone in the group is in it together, the community becomes closer and there is more trust in the loan arrangements.

That’s important – I’m sure whenever someone looks at a payday loan they must have some element of doubt or worry in their mind about getting involved with a payday lender. With credit unions they can rest assured that they are part of a trustworthy organisation.

Credit unions are a great alternative, and we are working to set up more by investing £38m so that communities everywhere have access to them.

Make payday lenders play fair

We also need to help people who might have already chosen to use a payday lender, to know what they’re getting into and where to get help if things go wrong. This is why I’m supporting Citizens Advice’s payday lending awareness month to make sure people know what lenders are and are not allowed to do. This video from Citizen’s Advice sets out what you can do if you have a problem with a payday lender:

We want to do as much as we can to help, and your views will inform our work to improve the payday loans industry. Only last week, fifteen payday lenders left the market in the face of scrutiny from the Office of Fair Trading as they couldn’t prove that their lending practices were up to scratch.

So, do you think payday lenders are really practising best behaviour as they say they are? Would you or have you turned to a credit union when money’s short?

If you have recently taken out a payday loan, please fill out this short survey before 14 August to help the government understand how payday lenders are complying with their customer charter and codes of practice.

Which? Conversation provides guest spots to external contributors. This is from Jo Swinson MP. All opinions expressed here are Jo’s own, not necessarily those of Which?.


Good luck, but I’m not expecting much from any government. Remember how back in 2004 hospital trusts were told by government to stop allowing claims management firms to advertise, well its 2013 and its still happening.

The Government hold large stakes in couple of banks why not force them to lend money and educate people to live within their means. Smart phones, TV bundles are nice things to have but if monies really tight, then maybe look at what you’re actually spending your money on first, and you may even manage to avoid the need for a loan.

I hope the initiative the Church of England proposes by using its premises as outlets for community lenders will be supported by the Government, and not just work on a different scheme – an integrated scheme that is ethical, national, accessible and well advertised, including TV – should avoid the need for people to go to pay day lenders.
The goverment should act to curb the huge charges that are attached to pay day loans – why hasn’t it? They are no different to loan sharks, who are legislated for.
Commercial lenders must, in the interests of their shareholders and depositors, assess risk of default when making a loan – they are not there to provide a social service and the granting of a loan, and the interest, should reflect the risk. So let’s not knock banks and credit card companies for not lending to insecure borrowers, otherwise we will be back in the 2008 debt crisis again.

neil burton says:
6 August 2013

More credit unions is a good idea. Improving the quality of management and systems in the ones we already have is a better one. But it alone won’t do much to address the short term loan issue. The government should put its energy into ensuring that credit unions can compete effectively, rather than trying to cap the interest rates charged by short term loan providers. Credit Unions are limited in what they can charge for a short-term loan to such an extent that it’s not commercially viable for them to do so. That leaves the field open to entrepreneurs. Investors in Wonga expect to make a great deal of money when it floats. Give the credit unions the power to compete effectively, then they’ll attract private investment, such as the Church of England, and other, pension funds.

Credit unions could take up a proportion of the business currently going to payday lenders and they should be enabled and encouraged to do so. But I have a feeling that a degree of exploitation will persist because, for many short-term borrowers, there is no effective alternative. Credit unions have to remain solvent, have to have capital provision, and have to operate entirely within their revenues. Hence their acceptance of applicants for membership will be prudent. Although interest rates might be more favourable the terms and conditions attached to their loans could be more stringent. Credit unions must not lend too much to people who might be at risk of defaulting so they will take longer to do their risk assessments, offer smaller loans than requested, and permit no roll-overs or top-ups. They are perceived as being judgmental. For many intending borrowers the attitudes and behaviours of credit unions might be an obstacle and might not be compatible with their philosophy in life. Credit unions generally strive to cultivate a responsible and balanced approach to personal financial management where members save with them when they can as well as borrow from them when they need to. The relatively immediate access to money, the more liberal acceptance of risk [at a price, of course], the flexibility of the lending, and the impersonal nature of the process, appeal to people in a way that credit unions do not. So there are two challenges: One, to devise a form of regulation for payday lenders that enables them to continue meeting the need for short-term finance – without punitive terms – for people with a risk profile outside the high street norm; and Two, to do something to assist, and prevent the exploitation of, those who will no longer be accommodated by the reformed payday lending industry and will be preyed on by illegal money-lenders, loan sharks, fraudsters, traffickers, pimps, and thugs, and other unscrupulous parasites.

Perhaps what the Church could provide is a means of helping people in financial difficulties sort out a budget to enable them to live on what they have, rather than enabling them to borrow money they cannot afford to repay?