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You can find the current article at its original source at https://www.theguardian.com/society/2018/apr/03/crackdown-payday-loans-predatory-lending-mental-health-poverty
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| We need to crack down on payday loans - for the sake of our health | We need to crack down on payday loans - for the sake of our health |
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| Cracking down on expensive and predatory lending is not only desirable, it’s imperative. It is hard enough being poor and paying a poverty premium on utilities and other essentials, never mind not being able to get cheaper credit that better-off people take for granted. As the Institute for Fiscal Studies pointed out in January, debt problems tend to be more persistent among the poorest people, with 40% of the poorest fifth of households who were in arrears or spending more than a third of their income servicing their debts between 2010 and 2012 still doing so two years later. | Cracking down on expensive and predatory lending is not only desirable, it’s imperative. It is hard enough being poor and paying a poverty premium on utilities and other essentials, never mind not being able to get cheaper credit that better-off people take for granted. As the Institute for Fiscal Studies pointed out in January, debt problems tend to be more persistent among the poorest people, with 40% of the poorest fifth of households who were in arrears or spending more than a third of their income servicing their debts between 2010 and 2012 still doing so two years later. |
| Although there have been improvements in regulation, such as capping the overall cost of payday loans, high-cost credit remains a serious issue. It is not uncommon in the US for someone caught in the debt cycle to be rolling over what are supposed to be short-term payday loans for months at a time, forking out around a third of their pay on monthly repayments, and paying far more in costs and fees than the original loan amount. | Although there have been improvements in regulation, such as capping the overall cost of payday loans, high-cost credit remains a serious issue. It is not uncommon in the US for someone caught in the debt cycle to be rolling over what are supposed to be short-term payday loans for months at a time, forking out around a third of their pay on monthly repayments, and paying far more in costs and fees than the original loan amount. |
| The combination of problem debt and the government’s austerity policies means it’s no surprise that child poverty is at its highest since 2010 and 30% of Britain’s children are now classified as poor (two-thirds of whom are from working families). Research by the Financial Conduct Authority found that 4.1 million people in the UK are already in serious financial difficulty, falling behind with bills and credit card payments. Whether it is debt advice organisations who see the fallout on their front doors day in day out demanding reform, or politicians such as Stella Creasy, who has campaigned for years against the high cost of payday loans and who is now taking on high-cost credit cards, the devastating impact of problem debt is gaining more traction in the political and public consciousness. | The combination of problem debt and the government’s austerity policies means it’s no surprise that child poverty is at its highest since 2010 and 30% of Britain’s children are now classified as poor (two-thirds of whom are from working families). Research by the Financial Conduct Authority found that 4.1 million people in the UK are already in serious financial difficulty, falling behind with bills and credit card payments. Whether it is debt advice organisations who see the fallout on their front doors day in day out demanding reform, or politicians such as Stella Creasy, who has campaigned for years against the high cost of payday loans and who is now taking on high-cost credit cards, the devastating impact of problem debt is gaining more traction in the political and public consciousness. |
| Last month, actor and activist Michael Sheen said he was stepping back from acting to focus on tackling high-cost credit, and formally launched the End High Cost Credit Alliance, a coalition of charities and responsible credit organisations he founded in 2017 to campaign for fairer sources of borrowing. | Last month, actor and activist Michael Sheen said he was stepping back from acting to focus on tackling high-cost credit, and formally launched the End High Cost Credit Alliance, a coalition of charities and responsible credit organisations he founded in 2017 to campaign for fairer sources of borrowing. |
| The need for cheaper credit for all is not just a question of fairness and practicality, it could also be good for people’s health. A new report from health education charity, the Royal Society for Public Health found, for example, that payday loans caused the most negative impact on their mental health. | The need for cheaper credit for all is not just a question of fairness and practicality, it could also be good for people’s health. A new report from health education charity, the Royal Society for Public Health found, for example, that payday loans caused the most negative impact on their mental health. |
| Exploitative and high-cost lending is intricately linked with greater poverty and inequality. The evidence indicates it can be a financial, health, and psychological burden. In the US, where the Pew Charitable Trusts estimates that payday loans are used by 12 million Americans a year (with many others resorting to other forms of high-cost credit), the impact on the financial and general wellbeing of vulnerable families has been well documented. Recent US research, for example, found that people who use short-term high-interest credit are 38% more likely to report poorer health. | Exploitative and high-cost lending is intricately linked with greater poverty and inequality. The evidence indicates it can be a financial, health, and psychological burden. In the US, where the Pew Charitable Trusts estimates that payday loans are used by 12 million Americans a year (with many others resorting to other forms of high-cost credit), the impact on the financial and general wellbeing of vulnerable families has been well documented. Recent US research, for example, found that people who use short-term high-interest credit are 38% more likely to report poorer health. |
| Some states are already fighting back: payday loans are banned in Washington DC and 15 states, while states such as Colorado have tightened regulations. Joe Valenti, director of consumer finance at the Center for American Progress, points to the fact that voters tend to be in favour of reform and have helped drive regulation within individual states. Nationally, he argues that when the federal Consumer Financial Protection Bureau (CFPB), set up in the wake of the financial crisis, issued what is called a “final rule” governing payday loans and similar products in October 2017, introducing protections such as requiring that lenders verify borrowers’ ability to pay, it was a significant step forward. | Some states are already fighting back: payday loans are banned in Washington DC and 15 states, while states such as Colorado have tightened regulations. Joe Valenti, director of consumer finance at the Center for American Progress, points to the fact that voters tend to be in favour of reform and have helped drive regulation within individual states. Nationally, he argues that when the federal Consumer Financial Protection Bureau (CFPB), set up in the wake of the financial crisis, issued what is called a “final rule” governing payday loans and similar products in October 2017, introducing protections such as requiring that lenders verify borrowers’ ability to pay, it was a significant step forward. |
| But all this could be undone if a bill going through Congress is passed. It would curtail progress and overturn state efforts to tightly regulate payday loan charges. | But all this could be undone if a bill going through Congress is passed. It would curtail progress and overturn state efforts to tightly regulate payday loan charges. |
| And ultimately if we are going to truly tackle problem debt, we need to ensure that people don’t have to use payday loans or exorbitant credit cards just to get by. With soaring levels of inequality and shrinking welfare safety nets in both the US and UK, this doesn’t look likely to happen any time soon. | And ultimately if we are going to truly tackle problem debt, we need to ensure that people don’t have to use payday loans or exorbitant credit cards just to get by. With soaring levels of inequality and shrinking welfare safety nets in both the US and UK, this doesn’t look likely to happen any time soon. |
| • Mary O’Hara is author of Austerity Bites: A Journey to the Sharp End of Cuts in the UK | • Mary O’Hara is author of Austerity Bites: A Journey to the Sharp End of Cuts in the UK |
| Payday loans | Payday loans |
| Mary O'Hara: Lesson from America | Mary O'Hara: Lesson from America |
| Borrowing & debt | Borrowing & debt |
| Poverty | Poverty |
| Social exclusion | Social exclusion |
| Credit cards | Credit cards |
| Austerity | Austerity |
| Mental health | |
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