Tuesday, 13 June 2017

Payday Loans Complaints Increase by 227%: A Social Time Bomb

Today’s post looks at the recent news that, according to the Financial Ombudsmen Service in the U.K., complaints over the last year regarding so-called ‘payday loan’ companies have increased by an incredible 227%, whilst complaints relating to consumer credit more broadly have increased by almost 90% to around 26,000. We have looked at this issue before here in Financial Regulation Matters on a number of occasions – most notably with regard to the Financial Exclusion Committee – so today we will assess these increases and the supposed rationale for them. However, as is usually the case when we look closer at any issue, there is a growing underlying issue which is intensifying at every turn.

The figures released by the Financial Ombudsman Service relate to most sources of credit, with the majority of complaints still being concerned with Payment Protection Insurance. Whilst some areas for complaint in relation to credit went down – complaints about banks for example – the general rise in relation to personal credit has been described as ‘striking’ by the CEO of the Financial Ombudsman Service, which follows on from the warning from the Bank of England earlier this year on the rapid expansion of personal credit in the marketplace. It has been suggested that one of the reasons for such a rapid increase is the availability of credit now, in conjunction with the increased knowledge of consumer rights, although this has been countered by attempting to understand the wider issues. Writing in The Independent, one commentator notes how ‘increases in the cost of essentials such as children’s clothing, and food, have started to play an important role in the inflation figures’, which he then continues to state that ‘if you’re struggling, if it’s a choice between a high-interest loan and not feeding your kids, what are you going to do?’. The picture painted by the commentator is bleak, but we must examine it to see if it holds up.

It would be accepted to believe that the very poorest in society experience these circumstances, but that would be to operate within pre-2007 parameters; the reality is that since the Financial Crisis and the attack of austerity measures, the dynamic has changed dramatically. If we focus on the ‘just about managing families’, as Theresa May labels them almost continuously, then the reality of the blight that is payday loan companies really comes into focus. This category, which according to the policy thinktank that spawned the phrase describes as ‘lower middles class and upper working class families, around half of all households in Britain’, is repeatedly turning to payday loan companies, or even just high-interest loans, to maintain their existence – in reality, the category is better defined as 6 to 7 million families with ‘below average’ incomes. Nevertheless, the figures, and the response by leading politicians, make for astounding reading. There are more than 13 million people in the U.K. ‘living in poverty’, 7 million of which are from working families as stated above, whilst the Joseph Rowntree Foundation found that ‘if the costs of disability are taken into account, half of those in poverty are either disabled or living with a disabled person’. There, quite obviously, are a variety of factors that will affect a person’s financial standing, with high and increasingly insecure private rentals playing a part, just as much as the ‘squeeze’ on those raising young children. Yet, some of the policies emanating from Theresa May’s Government seem intent on making it harder for these families, not easier as she was at pains to pledge during her disastrous election campaign.  

The Conservative Manifesto contained a pledge to remove the ability to eat a free school lunch from over 900,000 children, a move which the Education Policy Institute confirmed would affect children coming from ‘ordinary working families’. This came after the move to end universal free school lunches for infants – replacing them with free breakfasts instead – which will cost the families of those affected £440 per child per year and save the Government £650 million per year, a move which ‘risks punishing exactly the kind of families the prime minister has promised to help’. This post has chosen the subject of ‘children’ as its focus, but in reality it could be anything – mental health, disability, discrimination – society is being torn apart by the incessant quest to have the country pay for the actions of the elite during the turn of the century. Reports like that of the Institute for Fiscal Studies, that May’s welfare cuts will push ‘almost one million more children into relative poverty by 2022 and two thirds of those affected will live in working households’, do not seem to stemming the tide. The connection between looking at young families and payday loans is worthwhile because, as the commentator implied earlier – people will turn to high-interest lenders when it comes to caring for their children. The policies of this government are concertedly putting these ‘just about managing families’ into that predicament, which is likely the underlying reason for the Conservative Party failing to win a majority in the recent election – the recent statement by the Prime Minister’s new Chief of Staff, Gavin Barwell, that the Party has to look at ‘ending austerity’, is a clear indicator that the well is beginning to dry up. When it comes to denying children free lunches at infant schools, it is clear that there is nowhere left for the Government to go in their mission to have the country pay for the costs of the few. As has been repeated before here in Financial Regulation Matters, the focus is on the Conservative Party because they are in power and their actions must be scrutinised, but when Children are potentially going hungry whilst in a place of mandated education, enough is surely enough. The suggestion by the Financial Conduct Authority, that the cap on charges by payday loan companies – which has seen their numbers reduce – should be lifted so as to avoid ‘illegal lending’, however, suggests that the powers that be do not agree that is enough is enough, which is an incredible thought when one looks at the ferociousness of this assault that is labelled as ‘austerity’; who else can be disadvantaged in its name?

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