OpinionJun 27 2013

Payday loans - do we need them?

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Technocrats, encouraged by certain sectors of the press, have declared war on payday and so-called doorstep lenders.

Typically, however, it is an attack laced with contradictions, but who minds a few irrational views when it is the decibels that count?

However, let us go back to basics: in normal circumstances, banks will be the primary sources of household borrowing; after all that is what they were created for, along with commercial lending.

But, for all kinds of objectionable reasons, including the level of debt on their balance sheets, retail banks have imposed tougher restrictions on lending.

After the sub-prime lending of the boom years, this return to sound risk management is understandable and necessary.

However, there is an unintended consequence of this new found ethical behaviour: what are we to do with those at the bottom of the social ladder, those the banks and hardline benefits conservatives are freezing out?

If you are a single parent on the tenth floor of a high rise flat in one of our conurbations with screaming toddlers, it is highly unlikely that a few kind words about being at the bottom of the prosperity queue will make the children stop crying.

What is more, when said parent goes seeking help from the state and is told to find a job, or that there is no help for them, a door-step lender offering a small loan at 4000 per cent a year interest can often seem like an Angel.

The fact is that payday and door step lenders have arisen to fill a gap in the market, the very people the banks, credit unions and non-bank lenders do not want to know.

These are the very people frozen out by the so-called credit reference agencies, who act as the border patrol for commercial businesses – the people who pay for their services.

If banks had a wider social responsibility - and they do – there is no real reason why they cannot be compelled by law to offer a basic account with a built-in over draft of about £500.

Such a development would eradicate the vast majority of payday and door step lenders and return money lending to a solid ethical base.

Further, when vote-catching politicians and their cheerleaders in the press call for a clamp down on benefit fraudsters, they be asked to think a bit more about the repercussions of their proposals before they express them in public.

There is a human price to pay for gung-ho policy proposals.