Jo Swinson: payday loans aren’t the only option

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.

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?