Tommorrow, the issue of Payday Lending is likely to hit the news as Stella Creasy MP’s campaign against the practice reaches a crescendo when her ammendments to Clause 22 of the Financial Services Bill are debated.
Panahpur are very pleased to have provided capital to help Fair Finance to grow their lending. I had the chance to spend a day at Fair Finance’s offices in Dalston last year, and saw their superb work at the front line of the battle to help financially excluded and exploited people out of a hole.
The way that the finanically vulnerable in our society are preyed upon by legitimate businesses who profit by feeding on their vulnerability is worthy of challenge.
One response, championed by Stella Creasy, is to regulate predatory lenders.
Another, led by the likes of Fair Finance, is to out-compete exploitative lenders. If predatory lenders cause misery, then surely a competitor whose loans help those excluded from mainstream financial services to get on their finanical feet will be prefered. As a social investor, we would see that competition is likely to be more effective than regulation.
Faisal Rahman, founder of Fair Finance is the expert here, not me. He said in one of his Guardian articles that “we might look at the choices people make and think that they are wrong because they seem expensive, but if we’re going to be serious about creating alternatives then we need to understand why people use them”.
Making judgements and then seeking regulation is a natural response. But it may not be the best or only one. Over the last 3 years, Faisal has written a number of articles in The Guardian on the subject, which illuminate many of the issues as often only someone working on the front line can.
In early 2009, this warned how payday lending was growing but was not being taken seriously.
In 2010, this – based on the indepenent report by Consumer Focus on payday lending – explained why alternatives to predatory lenders were finding it tricky to make progress.
Later that year, this explained why some people choose high cost lenders.
And this explains why payday lending is booming and who the real culprits might be.
It is well worth taking the time to see the issue through the lens of someone working on the front line. When one does, things start to look different. As with most things, the issue may not be as simple as it first appears.