:: Article

Bad Credit

By Max Dunbar.

Loan Sharks: The Rise and Rise of Payday Lending, Carl Packman, Searching Finance 2012

‘It is very expensive in this country to be poor,’ says the campaigning MP Stella Creasy, a little way into Carl Packman’s brilliant volume on payday lending. Here’s what she meant. If you buy a washing machine in installments it will cost twice as much as if you could buy outright. You will pay higher premiums because you live in what middle class insurers perceive as a ‘rough’ area. You tend to pay your whole allocation in tax, not a burden carried by landlords, small businessmen and City traders who know interesting ways of getting round that obligation. More relevant: when you borrow money, it will take you longer and cost you more to pay it back.

If it is expensive in this country to be poor, then it follows that there is a great deal of money to be made from the poor. Loan sharks have earned millions from estates where the average wage is maybe twelve grand a year. These guys, of course, aren’t regular lenders. They hang around in pubs and betting shops, in the ginnels and walkways of working class Britain, and find customers through the school run and Facebook trawls. They lend small amounts of money, adding arbitrary interest payments and late fees, dragging the process out for years. If you can’t pay, they can’t take you to court – these are illegal loans – so they use threats, violence, coercion and intimidation to obtain payment. A loan shark investigator told me about cases where wheelchairs had been taken as collateral, and a woman forced into submitting to rape as a repayment by ‘other means’. Poor people can find it difficult to get credit, because they are seen as unreliable debtors. But what the sharks and vultures know is that, if they apply enough pressure, they will get paid. Being working class in the UK is about survival. People will just go without food and fuel and children’s shoes. The money will come from somewhere. It always does.

In the UK poverty is a growth market. Post-crash, it was clear that whoever won the 2010 election was going to have to make serious spending cuts. On top of that, we elected a coalition government that introduced an unworkable austerity strategy, slashed essential failsafes, and hit people who couldn’t hit back. (At time of writing the DWP is planning to force seriously ill and disabled people to carry out indefinite unpaid work in return for subsistence benefits.) It wasn’t bad news for everyone, though. Provident Financial, a ‘home credit’ company (average APR 150% according to Packman) saw its shares up by 5%. In October 2010 its chief exec, Peter Crook, said that ‘We may well see a growth in our target audience… When people lose their jobs in the public sector, they might well come to us. If they are forced to take temporary or part-time work, most banks wouldn’t want to lend to them.’ It is a level of cruel opportunism that would make C. Montgomery Burns shake his head sadly. But Crook just said in public what is undoubtedly an unwritten short term lending business rationale.

At the bottom of my road is a place called Cash Converters. It’s one of many chains that will lend cash money to anyone, no questions asked. It advertises aggressively and flyered the street I live on. It’s a big business. Packman tells us that the market went from £100 million in 2004 to £1.7 billion in 2010. Come to my town, any town and on its high street you will see charity shops, poundshops, a lot of corrugated steel… and the glossy storefronts of Wonga, Cash Loans, QuickQuid, The Money Shop, Payday UK and many other respectable thieves.

It’s great to be able to arrange a loan and have the money in your account within minutes, but any high street bank should provide the same service. Unlike banks, short term lenders charge extortionate rates of APR, levy interest, late payment charges and interest on the late payment charges, and set up direct debits so that money can be taken at source. Rollover piles upon rollover, interest upon the interest, so that the customer is locked into a cycle of unsustainable debt triggered by a loan of a few hundred pounds. People will borrow to pay off a loan and borrow from other payday loan companies to pay off existing loans. Packman interviewed a man who ended up taking out sixty individual loans from a dozen companies, repaying a total of £21,707.49 with interest of £6,821.49. Because payday lenders are mainly internally financed, the stakes for them are higher. Packman writes: ‘The incentive therefore is not to sell a single loan of £1,000, but to sell a loan to a person who will borrow week after week.’

Which begs the question: if these companies are so evil, who the hell uses them? The Consumer Finance Association, the short term lender trade body, describes the typical customer profile:

The typical payday loan customer is a young adult or in early middle age, and relatively free of financial commitments such as a mortgage or dependent children. S/he may be averse to running up long term unsecured debt, and would rather choose to borrow and repay over a short period to ease personal cashflow when a number of bills arrive at once, or to fund an acquisition or activity.

This gives an impression of breezy time-poor professionalism, that is at odds with the actual demographic as encountered at CAB offices and food banks. Shelter claimed that almost a million payday loans were taken out in 2011 to cover housing costs. A payday loan firm has been accused of targeting people in the street, in the run up to Christmas: a staff member told the Mirror that ‘here is a saying among colleagues that where there is a pram there is a loan.If they are pushing a pram we know they are likely to be getting child ­benefit and people on benefit are good ­customers.’ Rowenna Davis, a South London councillor, who wrote the intro to Packman’s book, secured an undercover loan this way:

RD: There’s a horse that’s going to win, so I can get it back to you this afternoon.

Lender: OK.

RD: So that’s not a problem? If I come back in half an hour or something and bring that stuff, as long as I’ve been in my house a year it doesn’t matter?

Lender: No.

RD: Brilliant! Thank you.

An OFT survey quoted by Packman found that users of Provident-style ‘home credit’ tended to be on low incomes, to be undereducated, more likely to be unemployed or be lone parents. Similarly, I suspect that the people who turn up at MP’s surgeries, in tears and carrying documents in a plastic bag, more accurately represent the payday lender’s consumer base. Chances are, you have never heard of Provident or Milton’s or Brighthouse, and you only know about Wonga because of the excellent campaigning work done by Stella Creasy and others. Middle class people like me never heard of Farepak until it went under: a savings scheme for the respectable working class that provided Christmas hampers in exchange for small payments, carefully cut and saved from the year’s paycheques. This was a world we never knew.

Loan Sharksi s more than a Toynbeeish campaigner’s text. Packman has a fascinating chapter on the history of lending, and illuminates the religious taboos against usury and debt. Liberal tirades against consumer fetishism are just a modern updating of that prejudice. Credit is the lifeblood of the economy, you can’t have a functioning society without debt, and lenders should be entitled to charge interest – otherwise, what’s in it for them? People want food and shelter, they also want indulgence and good times, and if they can’t afford these things they will borrow, and if they can’t find good credit they will turn to bad credit. Packman identifies the real class struggle here: ‘People have fought, along class lines, long and hard to enjoy access to credit, even if it is to enter into the world of consumer capitalism.’ If people cannot get good credit from banks they will get bad credit from legal or illegal loan sharks, and Packman is realistic about the ability of credit unions to fill the huge gaps in the system.

Short term lending can work, within reason. America and Europe regulate their payday lenders so that people’s lives aren’t destroyed by debt spirals. As ever, Britain remains the last refuge of cowboys and thieves. Finally, however, the government have allowed the Financial Conduct Authority to cap the interest rates charged by lenders. It’s a rare victory for people power in a country where victories are hard to come by.

Max Dunbar was born in London in 1981. He recently finished a full-length novel and his short fiction has appeared in various print and web journals. He is reviews editor of 3:AM.

First published in 3:AM Magazine: Wednesday, December 5th, 2012.