It's been a busy
news week. I was interviewed on Jeff Randall Live on Sky News on Monday evening
about the government's proposals to cap the cost of Payday Lending. A bit like buses though, news stories of
interest tend to come in twos and threes, and I had a view on the three main
news stories the programme was covering.
Firstly, the Lawrence Tomlinson report containing allegations that RBS had pushed healthy small and medium-sized businesses into administration to strip their assets and then buy them back cheaply to make a profit. As the MP Mark Garnier said in his interview: "I'm not a lawyer, but these allegations, if true, look a lot like fraud to me." How many credit professionals are looking back at bad debts incurred where they thought their decision to supply had been reasonable based on their assessment of customer risk only to be caught with a bad debt when the customer went in to insolvency and wondering if the allegations might be true? Apart from the obvious impact on the businesses forced into insolvency, what might the wider impact on their suppliers and the economy be?
Secondly, the government was selling £900m of student loans to a debt management consortium for £160m. The loans had been taken out by students who started courses between 1990 and 1998. Part of the reaction to the news was that debt collection companies would act irresponsibly and aggressively in recovering debts that have so far not been collected. The Student Loans company doesn't have the best record in managing its loan book and particularly the older elements of the portfolio. We're told the terms and conditions of the loans are not going to be changed as a result of the sale and, if engaging third parties increases the recovery of funds to the public purse, then I'm all for it. Perhaps the debt collection companies will just apply good credit management principles and collect money that is overdue from people who can - and should - be repaying it.
Thirdly, the Chancellor's announcement that government will impose a duty on the FCA to cap the cost of payday lending. Setting on one side the suggestion that the announcement is one of political expediency, there are bigger questions to be answered. How will the cap level be determined? The quoting of the Australian model with its cap of 4% per month seems to overlook the 20% arrangement fee that can be charged, and the punitive penalties for late payment that can be applied. And the last thing we want is for the cap to make short-term lenders flee the market forcing borrowers to use loan sharks instead.
I'm not averse to the principle of restricting overt profiteering that can exploit the most vulnerable but let's not forget that payday lenders aren't the only guilty parties here. As I said to Jeff Randall, I went online and looked at what £100 payday loan for a month would cost. I'd have to pay back £137.15. If I took an unauthorised overdraft on my current account with a High Street bank the cost would be £5 per day, capped at £95 in a month. On another current account I looked at, the cap would be £150, and both of these accounts would also charge transaction fees on top. On this comparison, charges of £37.15 sound a snip!
Equally big issues with payday lenders are the opportunity for borrowers to take out multiple loans with multiple lenders, the availability of repeated roll-overs, and - as I've said in this blog before - the failure of lenders to carry out adequate affordability checks ahead of granting loans.
Back to my buses
analogy, I guess next week will be devoid of any significant news and we'll be
back to following the exploits of celebrities and their social lives!
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