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Asking the right questions about the payday lending industry

It’s amazing what you can find on the internet sometimes.

Just looking around I found an American-based website offering people toolkits on how to create their own payday lending business. In big, bold capitals one of the headers reads:

“You can make a tremendous amount of money in the payday loan business and help people if you know what you are doing!!”

The last bit struck me, of course: help people if you know what you’re doing.

One of the things that comes up in conversations about the payday lending industry is whether the people that run them actually believe they are making a difference to the lives of their customers.

Are the people selling credit at sky high rates of interest really convincing themselves they are helping, or do they go home rubbing their hands at night.

What ought to be taken into consideration, when dealing with this subject, is that the former may well be true in some cases; that lenders feel they are doing good.

Indeed as it stands it’s possible to think they really are. After all, banks are worried about lending and sometimes the only option for people is to ask an illegal lender.

If there was any wage increases during the boom years of 1997 – 2007 then it was small, but chances are when most look at their pay packet and the increase in outgoings, any benefit we had during those years was boosted by credit. For many, that dependency has now been shifted to alternative lenders.

Barry Stevenson, chief executive of Albemarle & Bond – a pawnbroker, recently told the Guardian: “There’s hardly any bureaucracy and no intrusive checks; we treat people like human beings, unlike a lot of banks.”

One payday lender once wrote:

really, what I do when I hook someone up with a fast cash payday loan, is give another chance to some poor guy who just does not have any chance at all without me. Sure, I make money off of the poor, but is that so wrong?

In these times pawnbrokers, home credit lenders, payday lenders and the rest can take the moral high ground over banks. Even politicians, naming no names, are reduced to thinking that there is a place for the alternative lenders.

But I was recently speaking to one person who thinks different. They told me how absurd it is to equate, as so often good-willed people do, demand for the product [i.e. the need to borrow more to top-up their income] for appropriateness or usefulness of the product.

In other words the correct question to be asking here is not whether there is sometimes a need for short term, high cost credit, but whether it is good for people in the long term, and whether it is not damaging to assume mainstream lenders must turn its back on the people whose only alternative it is to be ripped off.

It is when regulators and policymakers start asking these questions that real results can be found.

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