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Boom-time for legal loan sharks
How deregulation, market failure and a crisis in wages has led to the rise of payday lenders

Download the full paper here.

Payday lending originated in the US, but after being squeezed out by urgent regulation and usury laws, the industry set up shop in the UK where markets were entrusted to run themselves with little regulation from the state, and where prices at which lenders could sell credit were not restricted.

Self-regulated payday lenders have exploded on the consumer credit scene since the recession and financially vulnerable individuals are now starting to feel the impact of this new type of lender on the high street. This paper shows that over a million people took out payday loans in 2012. Much of this borrowing is to pay for food and other essentials or bills – not the outcome of financial imprudence that some would have you believe.

Workers are finding it increasingly difficult to top up their declining wages with mainstream credit and because of that personal debt is rising to severe levels. Stagnating and falling real wages, precarious employment and increasing costs of living are compounding to create dangerous personal financial insecurity – with the bill for outstanding personal debt standing at £158 billion in February 2013.

This paper calls for the government to set a cap on the cost of credit and end self-regulation. It also calls for the introduction of a reasonable rollover limit, restrictions on the amount of times a person can take out loans in order to service the interest of existing or “live” loans and an obligation on all lenders to put all credit transactions through a credit reference agency.