“The charity StepChange have recently reported that twice as many people who sought their help with debts in 2012 had payday loans out compared with 2011. Reports like this remind us that change is needed to the way payday lenders are allowed to operate in the UK.
There was some optimism last year: after the successful amendment to the Financial Services Bill by Lord Parry Mitchell of the BIS opposition team, the power to place a cap on how much a lender can charge on a loan was granted to the newly created Financial Conduct Authority (FCA), whose powers begin April 2014.
This was to have a very positive impact on the 1m+ Britons who are in hock to high cost credit sellers online or on our high streets.
The bill says the FCA will be able to determine a maximum total cost for a credit product, as well as the maximum duration of the product sold to an individual; the task for government was to determine exactly what cost that should be set at.
However in March the Department for Business, Industry and Skills, along with the Personal Finance Research Centre at the University of Bristol, published a report providing evidence to suggest price caps, in isolation, would actually cause further detriment to the consumer.
The report had many flaws, but what it showed was that we will be waiting longer still for the government to pull its finger out on this crucial issue.
Regulation isn’t the only solution
This does not call for us to despair, however. Regulation is vital, but society must take the lion’s share of responsibility too. Nowhere can this be better informed than by the principles of Catholic Social Teaching (CST) – something that has had a political resurgence in recent times.
In responding to the new world of growing liberalism, market economics and improved modes of capitalism, Pope Leo XIII urged his followers to avoid being fearful of the progress and understand the modern age. He laid these plans in his 1891 encyclical letter Rerum Novarum, which sought to advocate a set of economics beyond Capitalism and Socialism, or what came to be called Distributism.
The four founding principles to CST were to appeal to: human dignity (which posited that humans were political in nature); the common good; solidarity; and subsidiarity.
With the latter principle, the focus is laid upon what individuals are able to do, where it is no longer necessary for wider society to step in.
Simply put, this overcomes the paternalism inherent to an overburdening statism, but makes sure to put a hold on the individualism inherent to neoliberal capitalism. The focus, in short, is upon morality, not regulation.
Catholic Social Teaching speaks to corporate responsibility and personal morality, but where do consumers and payday lenders specifically come into the picture?
In brief CST is about relationships, trust and community. Equally, credit is trust (the word from the Latin credo translates as ‘I believe’) and is absolutely fundamental to community, which is necessarily relational.
But usury, which stands for unreasonable rates of interest extracted from a credit transaction, is inherently unjust, because – as Thomas Aquinas and Aristotle taught us – it disturbs the relationship of equality necessary to community harmony, and thus usurps trust.
So what can consumers and affected individuals do themselves? For best practice we need look no further than the Kilburn Fair Credit Commission.
The ongoing initiative by Movement for Change (M4C) brings together a range of community leaders, from neighbourhood watch and the Salvation Army, to private tenants representatives and local inhabitants to investigate, according to M4C organiser James Scott, “how to not only take on exploitative pay day lenders, but also improve local access to low cost, fairer forms of credit”.
Their six-week scoping exercise on the Kilburn High Road sought to move beyond being critical to proactive. Community leaders joined organisers partaking in a mystery shopper task, visiting banks, payday lenders, pawnbrokers and credit unions to see who were willing to offer personal loans to hard up consumers for the best price.
After recording details of their findings, other key tasks were undertaken such as putting pressure on the local council to give the local credit union a shop front, thereby giving it more presence on a high street otherwise flooded by high cost credit lenders.
Corporate social responsibility
But embedded to Catholic Social Teaching is the responsibility of business as well; payday lenders and other high cost credit lenders ought to, as part of their obligation to the communities they operate in, take serious consideration of their practices.
These lenders thrive from repeat custom, but very often the types of loans being sold to consumers do damage to their personal finances and existing debt profiles. Therefore payday lenders should work in unison with credit unions, highlighting their services to consumers who are at risk of entering a debt spiral.
Furthermore, payday lenders should ensure all their loan applications are subject to credit checks, while trade associations on behalf of payday lenders should highlight the benefits of credit checking systems such as Veritec, that are currently being used in Florida, to show how many loans borrowers have live at any given time.
While it is very positive that the regulatory architecture on high cost credit is changing, Catholic Social Teaching shows that moral responsibility lies beyond regulation. The solidarity of the community and the moral responsibility of high street businesses should work alongside national government in turning credit back into something that unites, not divides.” (http://www.leftfootforward.org/2013/05/can-catholic-social-teaching-help-citizens-with-debt/)