Clear and Enforceable

David Barclay writes:

The chorus of disapproval is starting to become deafening on payday lending.

First the Office for Fair Trading came out with their damning report into the industry. Next came a Citizens Advice survey, which found lenders breaking 12 of their 14 Code of Conduct promises. Now the whole industry has been referred to the Competition Commission over ‘deep rooted’ issues.

Yet the government’s inaction speaks louder than its tough-sounding words. If today’s summit on whether the UK needs more regulation is to be anything more than a talking shop, then we need to learn from other countries. That’s why the Just Money campaign is today pointing to Canada, where there are better business practices and more imaginative regulation.

The timing could hardly be better. In Trafalgar Square, just a few hundred metres from where the government’s summit is taking place, crowds will be gathering to celebrate Canada Day with displays of street hockey and lots of maple syrup.

But our Commonwealth cousins have more going for them than bruising sports and a sweet tooth. They’ve also made significant headway on the seemingly intractable problem of payday lending which is leading to misery for millions in the UK.

The latest Which? survey shows four out of 10 customers on this side of the Atlantic are using payday loans for essentials like food and fuel.

Despite the avalanche of evidence pointing to widespread abuse and irresponsibility in the sector, the debate on how to regulate payday lending has been tortuous. The classic soundbite includes harsh sounding words on how things need to change, followed by a hand-wringing fear that any actual clampdown will see hard-up Brits will be forced en masse into the hands of illegal loan sharks.

This means the government has deferred any meaningful change until well into the future (the Financial Conduct Authority won’t exist until April 2014, and the recently-announced Competition Commission enquiry will take up to 18 months).

Meanwhile 100 million new payday loans are made each month, trapping more and more people in cycles of debt and sucking money out of the pockets of the potential drivers of economic recovery.

The example of Canada shows us it needn’t be this hard. There, the potent combination of more responsible businesses and political imagination has won the day and largely solved problems in the high-cost credit sector.

First the Canadian Payday Loan Association, the trade body representing high-cost lenders, adopted strict Code of Best Business Practices. Unlike the UK equivalent which is full of vague promises and empty rhetoric, this Code has clear and enforceable provisions, including a complete ban on rolling over loans from month to month and a promise to only offer one loan per customer.

Next the Canadian government announced a cap on the total cost of credit and implemented it in a way which allowed payday lenders to continue to operate within ethical boundaries.

After consultation, a high national limit was set with regional governments able to implement lower local limits. Some regions then took the sensible step of establishing ‘cap commissions’ made up of industry, regulatory and civil society representatives to establish a fair level to cap the total cost of credit at (in Ontario, for example, this has ended up with a $21 limit for every $100 lent).

Jo Swinson, the consumer affairs minister leading today’s summit, could start this process in the UK today. She could insist on a new Code of Practice for the UK payday lending industry with clear and enforceable provisions that meet the highest international standards. Then she could demand the information from the industry which will be needed before any decision can be made on a sensible cap level.

Once this has been done, a British ‘cap commission’ could be set up immediately to recommend a cap level which would protect customers’ access to credit whilst restraining the sky high interest rates currently on offer.

This would allow the Financial Conduct Authority to cap the cost of credit on day one of its operations, heralding a new era of fair play in this thoroughly discredited and morally bankrupt sector.

Sadly experience suggests this simple process might be all too much for the current government to contemplate. That’s why the Just Money campaign has brought together churches, schools, credit unions and others in the Citizens UK network to bring about as much change as we can by ourselves.

Today we’ll be meeting at some of the worst affected high streets in London with a Canadian theme (dressed as Mounties with maple syrup) to raise awareness about the situation in Canada and explain to local people how things could so easily be different.

We’ll also be announcing a meeting with The Money Shop’s Head of Corporate Affairs Caroline Walton, where we’ll be discussing how we could work together to build an example of best practice in the UK market.

The road to real change in the payday sector may still be long and winding, but the example of Canada suggests that with imagination and enough political will, we can make affordable credit available for anyone who needs it.