When we say we hate payday lenders, are we just being middle-class snobs?

While I waited at the bus stop in Camden Road this morning, the exhaust clattered off a fifteen-year-old Ford Fiesta just as it passed me.  A young mum was driving, obviously on the school run, two young kids in the back.  There, I thought to myself as I kicked the broken silencer into the gutter, is one of today’s first customers for Wonga.com.

Of course I might have been completely wrong:  the young mum might like driving her old Fiesta for sentimental reasons and keep half-a-dozen newer, pricier and more exotic machines on the driveway of her Hampstead home.  But I doubt it.  And it’s Thursday, which is the tightest day of the weeks for family finances.  And she only has about six hours before those kids need picking up again.

I remember a piece of research a few years ago reporting that some astonishingly high proportion of the population – could it have been half? – agreed with the statement that they would be “unable to put their hands on £50 in cash by 9am tomorrow morning.”   Maybe it was a quarter.  Or an eighth.  But whatever it was, it’s a statement that is incomprehensible to the rest of us.  How many different ways could I lay my hands on £50 by 9am tomorrow morning?  At least a dozen.  And that without either cadging off friends or resorting to crime.

But what we in the affluent middle classes have to understand is that there really are millions of people in the country for whom borrowing from a payday lender is the only way of getting that exhaust fixed by 3 o’clock this afternoon.  The only way.  And to say that borrowing at four-thousand-and-something per cent APR is a terrible decision, and the people who lend the money are terrible people, completely misses the point.  Or, indeed, several points.

It misses the point that the only other available decision – the one which involves leaving the kids outside the school gate at 3.30 wondering what’s happened to mum – is a good deal more terrible.

It misses the point that we’re just absolutely not operating here in, or anywhere near, the world of APR comparison-shopping.  This is not about looking at best-buy personal loan tables in the Daily Telegraph, finding a small Midlands building society that’s three bips below everyone else, filling in an online application form and waiting for our positive credit check to come back from Experian.  That’s not in any way a meaningful comparison or frame of reference here.

And it misses the point that our young mum isn’t actually paying four-thousand-and-something per cent, or anything like.  What she’s doing is borrowing £50, and paying back £60 when she gets paid tomorrow (or possibly £30 when she gets paid tomorrow and £35 next Friday).  The cost to her is not four-thousand-and something per cent:  it’s a tenner.  And given that it’s the only game in town (and given that this kind of lending represents a level of risk that no-one else will touch), she’s not too gobsmacked by that.

Ah yes, credit risk.  Surely we’re appalled by the strongarm tactics that many of these firmsuse to, um,. encourage reluctant repayers?  Well, yes, of course, no question, utterly disgraceful and repugnant.  But our outrage may well be out of line with the feelings of punctual repayers.  If more defaults meant even higher rates, the majority would surely support a higher, not lower, level of encouragement for the minority.

The thing is, it seems to me that being against payday lenders reflects a total failure to recognise how very poor people live.  If a payday loan is the only way to feed the family for the next 48 hours, or the only way to pay for your travel to work until Friday, or the only way to keep the electricity on during the current cold snap, then pious hand-wringing doesn’t do much good for the borrower.  I suppose it might be nice if the lenders dropped their APRs by a thousand per cent or so, but would borrowing £50 today and paying back £54 instead of £55 tomorrow really be all that different?  And if the rate cut meant tougher credit checks, more rejections, slower approvals and fiercer pursuit of defaulters, are we really sure that would represent a net gain for the market these lenders serve?

I need to interrupt this somewhat unexpected defence of payday lending to emphasise that payday lending, like any other financial product or service and indeed any other non-financial product or service, would indeed be impossible to defend if the providers were exploiting their customers to make obscenely high profits.   As far as I can see, looking quickly at a few of the bigger players, that doesn’t seem to be the case – in fact, at least one seems to be on the brink of insolvency.  Payday lending isn’t remotely in the same class as PPI, for example, when it comes to preposterous profitability.

In short, I think being against payday lending is being against being poor.  Today, this Thursday, if you announced that you were going to abolish the whole universe of payday lending at lunchtime, there are tens of thousands of people with empty fridges and credit-less Oyster cards who’d be panic-stricken at the news.

And a certain fifteen-year-old Ford Fiesta that wouldn’t be in its usual spot outside Brecknock Primary this afternoon.

3 thoughts on “When we say we hate payday lenders, are we just being middle-class snobs?

  1. Completely agree, and have thought this for a long time. Very sad when people get into trouble with payday lenders, but you are absolutely right that middle class people have no idea how other people live and what difficult choices people sometimes have to make.

  2. “In short, I think being against payday lending is being against being poor”

    That’s a wide extrapolation, in purely black and white terms. I am for the poor, by supporting a living wage, credit unions, trade unions that ensure wages keep up with the cost of living, clamping down on restrictive piece meal zero hour contracts, good affordable childcare and a whole raft of other socially progressive and sensible policies.

    The proliferation of these quick fix loans is a symptom of economic market failure, even if these companies behave entirely honorably.

    Except, of course as the news tells us today, at least Wonga acted less than honorably by sending threatening letters from fake solicitors, sometimes charging fees for sending the letters. Fees which some of the most vulnerable people in our society duly paid, for fear of legal reprisal.

    I won’t apologise for calling payday loan companies rapacious, bottom feeding, parasitic scum of the highest order, and the anecdotal article above doesn’t change my mind. Some of those Wonga executives need to be charged with multiple counts of fraud, but what with their Tory party donations, can’t see too much fuss being made by those currently in power.

  3. I support all those good things you support, Simon, but at the moment they’re not really happening and they’re not really making the lives of people with little money much easier. None of them was going to help that mum I saw in Camden Road pick her kids up from school that afternoon.

    I don’t like payday lenders, and I particularly don’t like them when they behave badly, which they often do. But I do think that at the moment they are a necessary part of life for millions of people. (You can’t get a Crisis Loan from the DSS any more, and so-called Budgeting Loans are a) more or less impossible to obtain and b) at best not likely to come through for weeks.)

    If middle-class liberals could have their way, I’m sure the entire payday loan industry would be closed down tomorrow. But that would be an outcome viewed with horror and deep anxiety by people who currently – for all the good intentions of people like you – often have no other way to prevent the wheels falling off their finances.

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