Pay day loans are the tip of the iceberg. Flickr/michael goodin. Some rights reserved.Despite figures released earlier this year recording a seven-year high in consumer debt levels, and the IMF’s warning that the UK’s reliance on household debt puts any potential recovery at risk, the election campaign has been fairly quiet on the subject. Perhaps the news that the highest profile payday lender, Wonga, in a dramatic turnaround from the £62 million profit made in 2012, just posted a pre-tax loss of £37 million, together with the Financial Conduct Authority’s (FCA) new interest rate cap of .8% per day and tighter affordability checks, are being read as indicators of a problem solved? The timeline from Wonga’s beta launch in 2007 to Guardian ‘digital entrepreneur of the year’ award in 2011 was short and sharply followed by a series of public shamings, abetted by effective campaigning, not least by MP Stella Creasy. This led to the dumping of the notorious oldster puppets and the single 5843% APR price for borrowing, to chastened apologies and a revamped business model.
A persistent problem
But the problem of financial services for the poor has not gone away. In the face of the Archbishop of Canterbury’s, admittedly overreached, promise to force payday lenders out of business by helping credit unions to compete, the poor still face huge obstacles of access to financial services and pay much more for those they can. The low participation in credit unions measured against the substantial take-up of eye-wateringly expensive short-term loans is a hint that how and why borrowers act remains a puzzle to regulators. With the FCA remarking that tighter lending criteria and the possible disappearance of payday lenders means ‘many people will find a way to tighten their belts, or turn to family and friends for help’ it is not clear that regulators have made much progress in the old problem of understanding the lived experience of a demographic group they are generally not members of.
Reform and regulation is still too often driven by a ‘deficit model’ of human reasoning. In this model, people will adopt new habits and discard old ones as they encounter new barriers, information, education or skills training. This may be being tempered by the recent enthusiasm in some policy circles for the application of behavioural ‘nudges’ designed for busy and cognitively limited human beings. But this does not seem to have extended to incorporating the customs, habits and practices of particular target groups. This inattention has changed little since Peter Townsend’s classic sociological riposte that the poor would need to live like ‘skilled dieticians with marked tendencies towards puritanism’ (1954: 134) to reach the nutritional standards that policymakers deemed achievable.
