Today (January 26) marks Blue Monday, the day that an academic calculated, 10 years ago, to be the most depressing day of the year.
From a spike in divorce rates, to miserably cold weather, to higher levels of debt following the festive season, the last Monday of January is a depressing one indeed.
Today UNITElive shines a spotlight on the millions of people sinking deeper into debt at the hands of payday loan sharks.
We spoke to payday lending expert Carl Packman about his new book, Payday lending: Global growth of the high-cost credit market.
Face of the recession
When the world lurched toward recession in 2008, payday lending had been lurking beneath the surface for decades.
Now, the high-cost credit market is all over the news, seemingly every day, from Wonga’s being forced to write off £220m in bad loans to the CMA proposing new payday lending reforms .
But Carl Packman was one of the first people to take a close look at high-cost credit, years before most of us even knew what a payday lender was.
“In 2011, I lived in an area– Kilburn in northwest London–that was starting to become what the BBC called ‘the face of the recession,’” explains Packman. “You had all these stores on the high street, like Woolworth’s and Curry’s, that had shut down. They were replaced with these slightly strange finance places that weren’t your mainstream banks.”
It was from this transformation of his neighbourhood that Packman was inspired to probe more deeply.
“I have quite a few friends who’ve gone to these payday lenders for various problems they’ve had in their financial lives,” he says.
“At one point, when payday lenders weren’t so widely known, it was very difficult for people to talk about. They were embarrassed. You’d be surprised by how many people have taken out payday loans. It’s not something that’s specific to certain communities.”
Packman’s latest payday lending book, just recently published by Palmgrave MacMillan, is an extension of his first book, Loan Sharks, which focused on the blossoming of payday lenders in the UK. In Payday Lending, Packman goes global.
“The problem of the global growth of the industry are the global networks,” Packman notes. “Many people tend to think that payday lending is relatively small. And in consumer credit terms in the UK, it is relatively small. But that’s not to say it isn’t big business.”
“When you dig a little deeper, you find lots of them are owned by the same people and have lots of operations in different countries,” he added.
He gives the example of Cash America, which started as a single pawn shop in the 1980s in America. It then slowly morphed into an enormous payday lender when the industry became more formalised in the 1990s. Now, Packman says, Cash America owns various payday lending brands globally, including Quick Quid and Pounds to Pocket in UK and DollarsDirect in Canada in Australia.
Packman said his motivation for writing a second book was to give the entire story of the industry that’s preying on millions of workers who’ve run out of options.
“The more I developed my research, I realised it’s really a half-baked story if we only limit it to one nation alone. It was necessary to address this particular problem as one that’s connected globally,” he noted.
In Payday Lending: Global Growth of the High-Cost Credit Market, Packman gives an all-encompassing history of payday lenders, from their origins in American to its development in the UK and beyond into Australia and the rest of the European Union.
Packman explains why payday lenders have grown particularly in Western economies.
“Payday lending tends to thrive in particular environments,” he said. “First of all, they develop in places where there is looser regulation of finance in general. Then there’s also the added factor of the reduction of wages in relation to the cost of living.”
Solutions in sight
Packman argues that even though payday lending makes up a relatively small portion of consumer credit in total, millions aren’t able to access other options that are more affordable and less predatory. The more the industry grows and exploits this lack of options, the number of people vulnerable to long-term debt traps will inevitably grow in tandem.
“Payday lenders advertise themselves as quick-fix solutions, but as is so often the case with such solutions, they can turn into long-term problems, into a cycle of debt you can’t get escape,” Packman explains.
So what’s the answer to an industry that had 1.6m people take out £10m in loans last year, many of whom reported extreme financial distress and an inability to pay these loans back?
“There are two things, and these are not mutually exclusive,” said Packman. “There needs to be a better regulatory system addressing the problem. Most countries, including the UK, do have regulations with regards to fair practices—how they collect debt or how they carry out affordability assessments.”
“But the problem is enforcement of those rules. Regulators need to introduce more stringent regulations over pricing,” argues Packman.
Packman said that the basic premise over which payday lenders compete is speed of service, not price.
“Unlike say, supermarket grocery chains, which advertise price deals on the things they sell, payday lenders advertise how quickly they can put money into your account,” he said. “This incentivises irresponsible lending, which creates a broken market.”
“Consumers are then inherently the victims of a broken market,” he added.
The second solution, in addition to stronger regulation, Packman says, is concerted investment in alternative options for those who don’t have access to other forms of credit, such as credit cards.
“What’s needed is investment in credit unions and community banks, but also removing some of the barriers that keeps these alternatives from competing with big banks.”
Payday Lending: Global Growth of the High-Cost Credit Market can be purchased here.