As a sophisticated economy, UK consumers have access to a number of mechanisms to help us manage our finances and the unexpected or unplanned demand which we face throughout our lifetimes. Some of these mechanisms are very crude and damaging, others are a great deal more effective and suited to provide an appropriate balance between cost to the consumer and risk to the lender. The most repugnant and damaging scheme is illegal and lenders are known as loan sharks, it is entirely unregulated and the levels of interest are potentially unlimited. Any scheme that reduces the lure and success of loan sharks is to be welcomed. However that does not make all legal schemes desirable or socially responsible in their own context. One of the reasons, that we as a nation are so used to borrowing money to manage our budgets is the out of control loan offers made to residents from the late 1980’s onwards. This came to an end when the economy crashed in 2008, but our behaviour takes time to change. Some people have consistently been denied access to this excessive lending from conventional sources, and so have turned to other lenders, just as their neighbours and friends have borrowed from banks and building societies.

Within the context of the various ways of lending money using legal mechanisms, the so called payday lenders are arguably the most damaging mechanisms. They will lend with very simple and quick underwriting, that leads to them accepting many people that banks and other lenders will not accept. They charge high rates of interest as a consequence of taking a high level of risk on their borrowers, and in addition to this their loans are usually relatively small and short term when compared to banks or other sources. This means that the cost of borrowing can appear very high as the costs of setting up loans by banks are spread out over longer periods and are a smaller part of loans. This can lead to payday lenders being shown in a poor light. However they have also been seen by many to have acted irresponsibly, rolling over short term loans from month to month which is when the cost of borrowing becomes socially damaging.

Over recent years there have been a number of schemes and campaigns to eradicate loan sharks and reduce the impact of loans at very short rates of interest. These have come from trades unions, churches, various charitable networks, football supporters groups (campaigning against shirt sponsorship), and even the Archbishop of Canterbury who famously promised to put Wonga out of Business. This promise came back to bite him as it turned out the Church of England owned shares in a company that was a part owner of Wonga!. In the last few days the Government announced that they had appointed a new Chair to the Financial Services Consumer Panel. I personally had no idea that this panel existed and in all of the discussions and meetings I have been involved in over recent years on the issue of helping to eradicate the social deprivation caused by irresponsible lending, the FSCP has never been mentioned to my knowledge. However the new Chair, Sue Lewis has made headlines with her early comments. She appears to be suffering from the same sort of difficulty as the Archbishop, although her muddle is less about hidden investments and more about misunderstanding her subject. In the case of Sue Lewis, if this article in the Independent is accurate, she has compared paying for a £50 meal in a Restaurant with a Credit Card and doing the same with a Wonga Loan. Whilst this comparison is perfectly accurate at one level, what Ms Lewis has ignored is that Credit Cards if repaid within a given period provide the loan free of charge. This is not the case with Wonga who charge interest on a daily basis. The other mistake that Sue Lewis made when she used the example she did, is to suggest that it is responsible to borrow money from payday lenders to pay for a meal. Clearly there could be isolated situations where this is appropriate, but the indications are that many of those who have got into difficulties with Wonga and other Payday lenders are people who do not dine out on a regular basis and who would not usually be able to pay for a £50 meal. This is not about snobbery, but rather understanding the nature of the work which Ms Lewis is about to undertake. She now has our attention, perhaps she can undo some of this confusion and grab headlines to promote responsible solutions such as credit unions, just as the Archbishop has been doing!