There’s little the press hate more than payday lenders. While politicians get plenty of heat, there are few UK industries which are subject to as much newspaper venom as short term lenders. Rain or shine, when something’s awry in the short term the media came down on companies like Wonga and their ilk like a proverbial tonne of bricks, once again giving the UK’s best-known short term loan providers the usual, demonising treatment.
A storm in a teacup?
While mistakes and missteps have certainly been made by the short term lenders, is this treatment a storm in a teacup? The most recent cases I can think of which generated comparable levels of intense and furious publicity were the energy price fixing scandal perpetrated by the UK’s “Big Six” energy companies and the payment protection insurance (PPI) misselling débâcle at Britain’s biggest banks.
If you’ve ever sat down to enjoy a spot of daytime television, you’ll know that the PPI problem is still yet to blow over. In fact, even in 2014, years after the incident came to public attention, the Financial Ombudsman receives thousands of complaints about PPI misselling every week. In March 2014, the Ombusdman was getting 1000 calls a day from callers complaining about PPI misselling. Overall, 2014 has seen 399,393 complaints. The scale of the scandal is huge and ongoing. Only this month (July 2014) the banks have again been hit with accusations of mis-selling on a scale which has lead many industry commentators to brandish this latest development as “the next PPI scandal”.
In the face of these figures and developments, payday lending problems pale in comparison. Yes, mistakes are made, but the level of attention these lenders receive for relatively harmless infractions seems to be grossly out of proportion with the actual harm done. It may still be early doors, but in 2014, the total number of complaints received by the Financial Ombudsman about all payday lenders amounted to just 794 individual issues.
The press and the church are at the forefront of the tirade of venom poured onto payday lenders. Yes, the industry has a less-than-shiny reputation but, as of April 2014, the whole industry has been under the strong arm of the Financial Conduct Authority (FCA) who took over from the weak-willed OFT to instil better regulation into a fledgling sector.
It’s clear that the short term lending industry is far from perfect. But, for a very young sector, it’s still largely unregulated and feeling its way towards better practice. When the FCA came on board, many less-than-scrupulous lenders ran for the hills. Meanwhile, other have chosen to stay and fight to be able to provide short term finance to those who want it, understand it and can afford it.
Archbishop Welby’s U-turn
Even one of the loudest voices from the anti-payday loan brigade, The Archbishop of Canterbury, has reformed his view of the sector in recent weeks. Once vehemently against the services offered by short term lenders, the Archbishop now considers the industry a necessary service provider which ensures that even those with few assets, less-than-perfect credit histories and emergency requirements for capital can access urgent finance in times of need. The alternatives, Welby conceded, which could include the rise of illegal and potentially dangerous loan sharks, are far, far worse than a fledgling industry with a new, strong regulator which is now working hard to get to grips with the product they offer.
A little perspective
With better-established bodies across a number of financial areas all guilty of serious errors (and in many cases, deliberate profiteering from activities like mis-selling), it’s easier to look at the payday loans industry with a little more perspective.
Our banks have been in existence for hundreds of years and still we see scandal after scandal getting swept under the carpet. These are the self-same banks who refuse to offer short term finance (for fear of reputational damage) yet often actively invest in short term lending companies.
In stark comparison, payday loans have only really become big business in the last decade and, with precious little regulation available until April 2014, they’ve had little guidance and support from the world of finance. It makes all the fuss about payday loans look like a malicious storm in a teacup.
Do you believe that the fuss made about short term loan providers is out of step with apparent double standards in the financial sphere? What’s your stance on payday loans? Share your views and experiences with readers below.