News analysis: Could legislation make payday loans more socially acceptable?

Spokespeople for the Consumer Finance Association (CFA), a trade body for payday lenders, like to suggest that 96 per cent of people have a very strong opinion about the industry but only the remaining four per cent have ever used it.

Quick cash: Payday lenders have been accused of being irresponsible
Quick cash: Payday lenders have been accused of being irresponsible

That 96 per cent clearly includes the Government, which last month announced it would go a step further than existing plans drawn up by the incoming regulator for payday lenders, the Financial Conduct Authority, by introducing legislation to cap the cost of payday loans.

Hanover Search Financial Services practice head Henry Groundes-Peace argues the Government’s intervention should do the sector good instead of undermining its social acceptability.

"The new regulations will give high-cost credit providers the opportunity to show how they are a legitimate part of the financial services landscape," he says. "The best providers should weather this change and put distance between themselves and the less scrupulous lenders."

Joanna Elson, chief executive of the Money Advice Trust, which exists to help people tackle their debts, believes the move may lead the public to interpret the industry in a more positive light. "Consumers may begin to assume, rightly or wrongly, that the worst lending practices have been stamped out and that what remains is a more respectable industry," she says.

The trust is funded partly by the Government and partly by banks, building societies and energy firms, though a spokesman could not rule out future funding from the payday lending sector. It believes payday lenders do have a role in society, but only where their business model is based on people repaying on time, rather than being allowed to roll over debts and rack up interest charges.

In the battle to win public legitimacy, lenders’ strategies range from a publicity seeking approach to the CFA’s more subtle political engagement.

CFA chief executive Russell Hamblin-Boone does not accept that the Government’s cap shows the industry is losing its PR battle, but freely admits there are bad apples outside his membership. "What is socially unacceptable is the practice of many lenders operating outside of the standards set out in our Code of Practice," he says.

The CFA is one of four different trade bodies for payday lenders. It claims its members, such as The Money Shop and QuickQuid, account for 60 to 70 per cent of the loan market by value.

It has added weight behind its influencing strategy this year with the appointment of head of public affairs Graham Dunn and the funding of panel debates at all three party conference fringes.

The debates, staged by think-tank ResPublica and entitled "4,000 per cent: Are payday loans ever in the consumer interest?", were chaired by journalists and featured a changing cast of MPs. However, Hamblin-Boone was a constant, as was Elson, whose spokesman stresses she never accepts payment or expenses for taking part in fringe events.

The CFA’s cerebral approach is to continue in the New Year by publishing a book of essays about the value of short-term lending written by MPs, academics and senior figures from consumer groups and debt charities.

Hamblin-Boone says: "The objective of our highly complex influencing role is to drive reform in the market and create a level playing field for responsible lenders. That’s why we are integral to the design of the new regulation."

With the regulations still being thrashed out – as Groundes-Peace points out, the exact value of the cap has yet to be set – there is much discussion still to be had. As the industry pushes its claim to the moral and intellectual high ground it can nevertheless expect to hear cynics cry that it is putting lipstick on a pig.

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