Payday Lending Regulation and Borrower Vulnerability in the UK

Transcription

PAYDAY LENDING REGULATION AND BORROWER VULNERABILITY IN THE UNITED
KINGDOM AND AUSTRALIA
Paul Ali, Cosima McRae and Ian Ramsay
Abstract
The current debate in the United Kingdom about the appropriate regulatory response
to payday lending involves the key issue of borrower vulnerability. There is
compelling evidence in the UK that many payday lenders are deliberately making
loans to financially vulnerable borrowers who cannot afford those loans. This article
examines the evidence for borrower vulnerability in the UK and Australia and the
regulatory responses in those two countries to payday lending. Payday loans in
Australia are the same as those that are available in the UK and the concerns that are
now being raised in the UK about payday lending formed the basis for recent
regulatory intervention in Australia. This article also contains an empirical study of
the location of payday lending businesses in Australia. We investigate whether
payday lenders are more likely to locate their business operations in areas where
larger groups of financially vulnerable people are living.
Introduction
Borrower vulnerability lies at the heart of the current debate in the United Kingdom
and Australia about how best to regulate payday lending. It was a key factor in
prompting the Chancellor of the Exchequer to announce on 25 November 2013 that a
cap would be imposed on the cost of payday loans which ultimately led to the
Financial Conduct Authority (FCA) imposing a price cap on payday loans from 2
January 2015.1 The significance of borrower vulnerability has been highlighted by the
recent, exponential growth of payday lending in the United Kingdom and Australia,
and the compelling evidence of widespread non-compliance by payday lenders in the
United Kingdom with their regulatory obligations.2
Consumer and welfare organisations in the United Kingdom have long claimed that
payday lending is detrimental to financially vulnerable borrowers and that those
borrowers are targetted by payday lenders. The recent survey of payday lenders’

Paul Ali is Associate Professor, Melbourne Law School, University of Melbourne; Cosima McRae
was Research Assistant for the Financial Literacy Project and is Research Fellow, Institute for
International Law and the Humanities, Melbourne Law School, University of Melbourne; and Ian
Ramsay is the Harold Ford Professor of Commercial Law and Director of the Centre for Corporate
Law and Securities Regulation, Melbourne Law School, University of Melbourne. This research was
supported by the Australian Research Council [Discovery Project DP1097253]. The authors would like
to acknowledge the invaluable work of Malcolm Anderson, Research Fellow, Melbourne Law School,
University of Melbourne on the statistical analysis contained in this article.
1
A. Monaghan, ‘Payday Loans face Cap by City Regulator’, The Guardian, 26 November 2013;
Financial Conduct Authority, ‘Policy Statement PS 14/16: Detailed Rules for the Price Cap on HighCost Short-Term Credit including Feedback on CP 14/10 and Final Rules’ (November 2014), 5.
2
Payday lending has prompted similar debates in Australia and other countries: eg A. Duggan,
‘Consumer Credit Redux’ (2010) 60 U Tor LJ 687, 701-705.
business practices by the Office of Fair Trading (OFT) 3 has led both it and its
successor organisation, the FCA, to form the view that payday lenders are, as a
deliberate business strategy, making loans to financially vulnerable borrowers who
cannot afford those loans. According to the OFT and the FCA, there is less need for
payday lenders to assess and monitor the ability of their borrowers to repay loans for
two key reasons: first, a high proportion of lenders’ revenue comes from making
repeated loans to the same borrower (where the borrower uses a fresh loan to repay a
previous loan and the interest and other charges that have accrued in respect of that
loan); and, second, the continuous payment authority, under which a payday lender
can recover what is owed to it by directly debitting a borrower’s bank account has
proven to be a highly effective debt recovery tool for payday lenders. Unsurprisingly,
this view that payday lenders are profitting from financially vulnerable borrowers has
been strenuously contested by payday lenders.
Evidence of borrower vulnerability is thus fundamental to shaping the regulation of
payday lending in the United Kingdom. The methodology commonly used to obtain
this evidence, and one which was employed by the OFT as part of the above survey,
is surveying borrowers by having them respond to questionnaires. In this article, we
present a different – and novel – methodology which we have used to derive evidence
of borrower vulnerability in the context of payday lending in Australia. Our study of
borrower vulnerability, while of immediate relevance to the debate about payday
lending regulation in Australia, is also, we believe, relevant to the corresponding
debate in the United Kingdom. The payday loans, which are available to borrowers in
Australia, are structurally the same as their UK counterparts and the concerns that
have been raised in connection with payday loans in the United Kingdom have also
been raised in Australia in relation to the introduction of a new regulatory regime for
payday loans. In addition, our methodology can readily be applied in the United
Kingdom and this is borne out by the fact that we have based our methodology on
ground-breaking United States studies of the demographics of payday lending.
In the next section of this article, we discuss the common structural features of payday
loans in the United Kingdom and Australia, and outline the potential of those features
to cause harm to financially vulnerable borrowers. The section that follows
summarises the evidence for borrower vulnerability in both those countries. We then,
in a further section, examine the regulatory responses in the United Kingdom and
Australia to payday loans. The final section of this article contains our empirical study
of borrower vulnerability. We investigate the hypothesis that payday lenders are more
likely to locate their business operations or stores in areas of relative socio-economic
disadvantage where larger groups of financially vulnerable people are living. In
testing that hypothesis we have drawn on scholarship from the United States where
the location of payday lending stores has been identified as a significant factor in
establishing that payday lenders target financially vulnerable borrowers.
Payday lending in the United Kingdom and Australia
Payday lending has, following the global financial crisis of 2008, grown considerably
in both the United Kingdom and Australia. The OFT has estimated that the total
3
Office of Fair Trading, ‘Report 1481: Payday Lending Compliance Review Final Report’ (March
2013).
1
amount of payday loans lent during the 2011 financial year was £2-£2.2 billion
(compared to £900 million for the 2008 financial year). 4 This growth of payday
lending in the UK is also evident in the increased presence of payday lending stores in
high streets across the UK – for example, in a single London shopping precinct, there
were 11 payday lending stores open for business in mid-20125 – and in the growth of
payday loans that are applied for by and made on-line to UK borrowers. 6 Payday
lending has demonstrated equally strong growth in Australia and, while the payday
lending market in Australia has not been surveyed to the same extent as the UK
market has been,7 the most recent estimate, published in 2012, estimates that about
A$800 million of payday loans was lent to Australian borrowers in the previous
calendar year.8
The most common reason for borrowers using payday loans, in both the United
Kingdom and Australia, is to pay for everyday expenses, including recurrent
household bills such as food and utility bills, to bridge short-term shortfalls between
income and expenditure.9 This can be attributed to the worsening financial situation
and increased economic insecurity of households since 200810 and the concomitant
decline in the availability of an alternative, mainstream source of credit for many
borrowers of payday loans (due to borrowers’ low incomes or poor credit histories
rendering them ineligible for mainstream credit,11 and banks and other providers of
mainstream credit having limited the supply of credit since 2008 12 ). The rapid
expansion of payday lending is, however, not due just to the financial situation of
borrowers but has also been driven, in large part, by the ‘successful business model’13
of payday lenders. The established payday lenders in the UK appear, according to the
OFT, to have made ‘relatively high profits’ since 2008.14 This is well illustrated by
Wonga, the largest payday lender in the United Kingdom, which disclosed that in the
4
Ibid, 9. See also Public Accounts Committee, ‘Regulating Consumer Credit: Eighth Report of Session
2013-2014’ (HC 20 May 2013), 3. The payday loan is a relatively new credit product in both the
United Kingdom and Australia, with the first payday lending stores commencing business in both
countries in the early 1990’s: S. Andersen, ‘The Phenomenon of Payday Lending’ (2013) 21 AJCCL
20, 28-29.
5
H. Osborne, ‘Payday Lenders and Pawn Shops change the Face of Britain’s High Streets’, The
Observer, 27 May 2012.
6
University of Bristol, ‘The Impact on Business and Consumers of a Cap on the Total Cost of Credit’
(Personal Finance Research Centre, March 2013).
7
Market Intelligence Strategy Centre, ‘Consumer Credit Report’, (Market Intelligence Strategy Centre,
2006), 55-56.
8
M. Banks, G. Marston, H. Karger and R. Russell, ‘Caught Short: Exploring the Role of Small, Shortterm Loans in the lives of Australians: Final Report’ (Research Report, Social Policy Unit, University
of Queensland and RMIT, National Australia Bank and Good Shepherd, July 2012), 1.
9
University of Bristol, n 6 above, 19; For Australia, see S. Andersen, ‘Mapping the Terrain: The Last
Decade of Payday Lending in Australia’ (2011) 39 ABLR 5, 9.
10
University of Bristol, ibid, 20.
11
Ibid, 21 and 24; M. Brignall, ‘Archbishop of Canterbury wants to “Compete” Wonga out of
Existence’, The Guardian, 25 July 2013; Banks et al, n 8 above, 5.
12
O. Akseli, ‘Vulnerability and Access to Low Cost Credit’ in J. Devenney and M. Kenny (eds),
Consumer Credit, Debt and Investment in Europe (Cambridge: Cambridge University Press, 2012), 9;
K. Broomfield and N. Ryder, ‘Payday Lending and the Consumer Credit Act’ [2013] Financial
Regulation International (February) 14, 14.
13
A. Gallmeyer and W. T. Roberts, ‘Payday Lenders and Economically Distressed Communities: A
Spatial Analysis of Financial Predation’ (2009) 46 The Social Science Journal 521, 522 (commenting
on the growth of payday lending in the United States).
14
Office of Fair Trading, ‘Report 1232: Review of High Cost Credit Final Report’ (June 2010), 34-35;
Office of Fair Trading, ‘Report 1232: Annexe E: Competition and Profitability’ (June 2010), 27.
2
2012 financial year it generated a profit of £62.5 million (an increase of 36 per cent
on the previous year).15 Again, while a similar study of payday lending in Australia
has not, to date, been undertaken, the financial performance of Cash Converters, the
largest payday lender in Australia, may indicate that, in Australia too, the established
payday lenders are continuing to experience healthy profits. Cash Converters reported
a profit of A$33 million (an increase of 12 per cent on the previous year) for the 2012
financial year.16
Payday loans in the United Kingdom and Australia have the same structural
characteristics. In both countries, payday loans are short-term, unsecured loans for
small amounts. In the United Kingdom, a typical payday loan is for £265-£270 and a
term of 25 days,17 while, in Australia, a typical payday loan is for A$100-A$300 and
a term of 16 days to one month.18 Payday loans in both countries are also typically
repaid through the use of a continuous payment authority (in the United Kingdom) or,
its equivalent, a direct debit authority (in Australia) from the borrower’s bank
account, meaning that payments of interest and other charges on a payday loan are
made automatically to the lender without the further involvement of the borrower.19
In both the United Kingdom and Australia, payday loans are very expensive
compared to mainstream forms of short-term credit such as credit cards. In the United
Kingdom (prior to the cap on the cost of payday loans coming into effect), the annual
percentage rate (APR) on a payday loan could range from 338 per cent to 4,438 per
cent.20 Wonga has reportedly provided loans with APRs of 5,853 per cent.21 Stating
the cost of a payday loan as an APR may arguably over-state the cost of the loan, as
the short-term of a payday loan will mean that it will have a high APR.22 Nonetheless,
the APR does not only reflect the short-term nature of the loan, it also reflects the fact
that the total amount of interest and other charges levied on a payday loan by the
lender are typically high relative to the amount borrowed under that loan. 23 The
OFT’s survey of payday loans revealed that the total cost of borrowing £100 from a
payday lender could range from £14 to £51. 24 In Australia, the interest and other
charges that a lender can levy on a payday loan are subject to a federal interest rate
15
Wonga Group Limited, ‘Annual Report 2012’, 2 and 7.
Cash Converters International Limited, ‘Annual Report 2012’, 2.
17
Office of Fair Trading, n 3 above, 9.
18
Banks et al, n 8 above, 1 and 35; Consumer Action Law Centre, ‘Submission to Treasury: Discussion
Paper: Strategies for Reducing the Reliance on High-Cost, Short-Term, Small Amount Lending’ (8
June 2012), 5. This study actually states that payday loans in Australia typically have terms of 14 days
to one month but payday loans with terms of 14 or 15 days are now prohibited: see n 149 below.
19
University of Bristol, n 6 above, 46. For Australia, see Banks et al, ibid, 1.
20
Office of Fair Trading, ‘Report 1232: Annexe E: Competition and Profitability’ (June 2010), 78. See
also National Audit Office, ‘Report by the Comptroller and Auditor General: Regulating Consumer
Credit’ (December 2012), 15.
21
H. Osborne, ‘Payday Loans – the Industry in Numbers’, The Guardian, 27 June 2012.
22
Office of Fair Trading, ‘Report 1232: Annexe B – Price Controls’ (June 2010), 12-13; Ibid, 14 and
78.
23
Payday loans are often rolled-over by borrowers, in which case, the loan effectively becomes a loan
for a longer term (with accrued but unpaid interest and other charges on the original loan capitalised),
and the argument against APRs (based on payday loans having short terms) is undermined: Office of
Fair Trading, n 22 above, 13-14.
24
16
3
cap (discussed later in this article). However, prior to this cap being introduced, there
were payday loans in Australia reported with APRs as high as 1500 per cent.25
The widespread use of continuous payment authorities to service payday loans in the
United Kingdom (and direct debit authorities in Australia) can, despite their
convenience, pose significant problems for borrowers on low incomes or who are
dependent on welfare benefits. The automatic debits out of the borrower’s account are
usually timed to coincide with the borrower’s receipt of salary, wages or social
welfare benefits, with the result that the borrower’s outgoings on the payday loan will
be prioritised ahead of his or her other commitments which could include essential
expenses such as food and utility bills. 26 This can increase the risk of borrowers
resorting to multiple payday loans to meet their essential expenses, especially where
the amount advanced under the original payday loan has been exhausted and a
borrower’s income is limited.27 Moreover, should the borrower default on the payday
loan, the combination of the additional fees charged by the payday lender for the
default and the dishonour fees charged by the borrower’s bank for the unsuccessful
use of the automatic debit may further increase the risk of the borrower entering into
multiple payday loans.
There is also evidence of significant abuse of continuous payment authorities in the
United Kingdom, with, for example, payday lenders taking larger amounts than
agreed from a borrower’s bank account. 28 Payday lenders also routinely use
continuous payment authorities as a debt recovery tool: a lender will, following a
borrower’s default, repeatedly make requests for payment under its payment authority
to the bank at which the borrower’s account is held, in order to obtain access to
whatever moneys may come into the borrower’s account as soon as those moneys are
available.29 The effective prioritisation provided by continuous payment authorities
and the ability to use those authorities for debt recovery offer payday lenders a
powerful incentive to make loans to borrowers who cannot necessarily afford those
loans.30
Finally, the short term of a payday loan means that the loan is normally intended to be
discharged in full by a single payment out of the income or welfare benefits that the
borrower expects to receive when the loan falls due. For borrowers with little or no
savings or who are dependent on social welfare, the repayment of a payday loan may
consume a large portion of their income or welfare payments. This increases the
likelihood of the borrower having to resort to another payday loan either to repay the
25
National Legal Aid, ‘Submission on the Consumer Credit Enhancements Bill’ (October 2012), 2,
cited in Parliamentary Joint Committee on Corporations and Financial Services, ‘Inquiry into
Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011’ (Joint
Committee December 2011), 72.
26
Step Change, ‘Briefing Document: High Cost Credit Bill Second Reading, House of Commons’ (12
July 2013); Financial Conduct Authority, ‘Consultation Paper CP 13/10: Detailed Proposals for the
FCA Regime for Consumer Credit’ (October 2013), 64. In Australia, see Consumer Action Law
Centre, Financial Counselling Australia and Consumer Credit Legal Service NSW, ‘Submission to
Treasury: Discussion Paper: Proposed Reforms Relating to Small Amount Credit Contracts (7 May
2012), 19-20.
27
Banks et al, n 8 above, 8 and 49.
28
University of Bristol, n 6 above, 47.
29
Business, Innovations & Skills Committee, ‘Debt Management: Fourteenth Report of the Session
2010-2012’ (HC 7 March 2012), 20; Financial Conduct Authority, n 26 above, 64-65.
30
Financial Conduct Authority, ibid, 65 and 77-79.
4
first payday loan or to cover essential expenses incurred before the borrower’s next
receipt of income or welfare benefits.
Together, the above features of payday loans – in both the United Kingdom and
Australia – carry the potential for substantial hardship to financially vulnerable
borrowers.
Borrower vulnerability and payday loans in the United Kingdom and Australia
A.
Evidence of borrower vulnerability in the UK
There is widespread consensus amongst debt charities, consumer organisations and
anti-payday lending campaigners 31 in the United Kingdom that many payday loan
borrowers are financially vulnerable. This runs counter to the claims advanced by
payday lenders. The largest payday lender association in the United Kingdom, the
Consumer Finance Association, states that borrowers of payday loans are ‘intelligent,
financially-savvy consumers who are making critical, proactive and positive financial
decisions … coping with the varied challenges of the post-credit era.’32 Wonga, the
largest UK payday lender, has been even more explicit, stating that its borrowers have
characteristics that are ‘notably different from the characteristics associated with
vulnerable consumers.’33
Borrowers can be considered vulnerable, under the numerous guidelines that have
been developed in the United Kingdom that outline factors of vulnerability for
consumers, where borrowers’ personal circumstances or characteristics create a
situation where those borrowers are less able to protect themselves or more likely to
suffer substantial detriment.34 A leading consumer organisation, Consumer Focus, has
recently highlighted that borrower vulnerability is not static and whether a borrower is
vulnerable in the context of a particular credit product is highly contingent on the
particular credit market for that product.35 In the specific context of consumer credit,
the key indicators of borrower vulnerability, in addition to general indicators of
vulnerability such as age (young people or elderly people), unemployment, low
income and membership of an ethnic minority, are the specific indicators of existing
financial difficulty and limited access to credit.36 Thus, vulnerability may exist where
31
The most prominent campaigner is Stella Creasy MP (Labour), who runs the anti-payday lending
campaign, ‘Legal Loan Sharks’ at http://www.workingforwalthamstow.org.uk/category/legal-loanshark-campaign/ (last visited 10 December 2013).
32
Consumer Finance Association, ‘Credit Crunched: A Commentary on the UK’s Changing Attitude
towards Borrowing and Spending’ (May 2013), 4.
33
Wonga Pty Ltd, Competition Commission Payday Lending Market Investigation: Initial Submission
of
Wonga
Group
Ltd,
12
July
2013
at
http://www.competitioncommission.org.uk/assets/competitioncommission/docs/2013/paydaylending/130820_wonga_initial_submission.pdf (last visited 10 December 2013).
34
Office of Gas and Electricity Markets, Consumer Vulnerability Strategy (4 July 2013) at
https://www.ofgem.gov.uk/ofgem-publications/75550/consumer-vulnerability-strategy.pdf (last visited
10 December 2013).
35
J. Stearn, Consumer Focus, Citizens Advice and Citizens Advice Scotland, ‘Tackling Consumer
Vulnerability: An Action plan for Empowerment’ (December 2012), 10. Factors that may lead to
vulnerability for consumers are a lack of confidence, low levels of literacy, numeracy or financial
capability, low or insecure income, unemployment, high level care responsibilities for another person,
physical impairments, mental health issues, living in social housing and being a sole parent.
36
5
a borrower on a low income and with limited access to credit relies on a high-cost
credit product, like a payday loan, to finance the borrower’s basic, recurring living
expenses. In the United Kingdom, in a study commissioned by the Department for
Business, Innovation & Skills (BIS) and published in March 2013, the University of
Bristol’s Personal Finance Research Centre found that almost two-thirds of the
payday loan borrowers surveyed had used their most recent payday loan to meet the
basic costs of living such as food and utility bills.37
The likelihood of borrower vulnerability increases when a payday loan is used to meet
basic living expenses. According to the debt charity, Step Change, borrowers who use
credit to fund the basic costs of living are more likely to have multiple loans.38 This
bears out the observation made in the previous section of this article that where the
repayment of a payday loan accounts for a large portion of a borrower’s income or
welfare payments, the borrower may need to resort to another payday loan to cover
his or her living expenses. Moreover, where the borrower has difficulty repaying a
payday loan (because, for instance, of the need to pay for living expenses), the Bristol
University study also found that such borrowers were four times more likely –
compared to borrowers who had been able to repay a payday loan in full when the
loan fell due – to have multiple payday loans.39
Limited access to credit is also considered to indicate borrower vulnerability. A
primary reason for borrowers resorting to payday loans is limited or lack of access to
alternative credit products, 40 for example where the borrower has a poor credit
history, is unemployed, or has already exhausted their credit limits on a credit card or
bank overdraft.41
Other studies of payday lending in the United Kingdom have strongly indicated that
financial vulnerability is typical of many payday loan borrowers. For example, a
study conducted by Consumer Focus in 2010 estimated that the typical payday loan
borrower had a below average income and that the habitual use of payday loans
caused substantial hardship to borrowers.42 The UK National Audit Office has also
estimated that close to half of all payday loan borrowers are on lower than average
incomes. 43 A survey of payday loan borrowers conducted by the consumer
organisation, Which, found that nearly half of these borrowers could not afford the
payments on their payday loans and that over half of the borrowers had actually
37
Ibid, 19, 112 and 117. This is consistent with the claims made by Which at
http://press.which.co.uk/whichstatements/which-response-to-payday-lenders/ (last visited 10 December
2013) and http://press.which.co.uk/whichstatements/half-of-people-taking-out-payday-loans-cannotafford-to-pay-them-back/ (last visited 10 December 2013).
38
Step Change, n 26 above.
39
40
Office of Fair Trading, n 14 above, 9; Step Change, n 26 above. The Archbishop of Canterbury
announced that the Anglican Church and community credit unions must address the harm of payday
lending by expanding affordable credit alternatives and thus ‘competing’ major payday lenders like
Wonga ‘out of existence’: Brignall, n 11 above; P. Collinson, ‘Credit Unions Aim to Beat Payday
Lenders at their own Game’, The Guardian, 25 July 2013.
41
42
M. Burton, ‘Keeping the Plates Spinning: Perceptions of Payday Loans in Great Britain’ (Consumer
Focus Research Report, August 2010), 21.
43
National Audit Office, n 20 above, 8 and 18.
6
missed a payment on a payday loan in the last year.44 A second study in 2013 by
Which has found that there are two demographic groups, exhibiting financial
vulnerability, where payday loan borrowing is higher than average:45 persons on low
incomes; and single women with dependent children. These groups were found to
have higher than average levels of missed repayments on their payday loans and many
had to use payday loans just to ‘keep their heads above water.’46 Close to a third of
the borrowers surveyed had obtained a payday loan even when they knew that they
could not afford to repay the loan and close to half had defaulted on their payday
loans.47
The above studies have clearly established that many borrowers of payday loans are
financially vulnerable. There is not, however, equal clarity as to the nature of the link
between financial vulnerability and payday lending.
It is possible, according to the Bristol University study, that the use of payday loans
may lead to financial difficulty or vulnerability and also that financial vulnerability
may lead to use of payday loans but the direction of the relationship between the two
is not clear-cut.48 Nonetheless, the Bristol University study of payday lending found
that approximately a quarter of the payday loan borrowers surveyed considered their
financial situation to be worse off as a result of taking out a payday loan 49 and
approximately two-thirds of the payday loan borrowers surveyed considered that the
payday loans had ‘trapped them into a cycle of borrowing’.50 While these figures do
not establish a causal relationship between payday loans and financial vulnerability,
the Bristol University study is consistent with other studies in finding that financial
vulnerability figures centrally in the use of payday loans.
B.
Evidence of borrower vulnerability in Australia
The question of whether payday loan borrowers are financially vulnerable and thus at
risk of harm from the use of payday loans was central to the debate concerning the
recent reforms to Australia’s consumer credit laws. These reforms (outlined in the
next section of this article) introduced new regulations specifically directed towards
protecting consumers who entered into payday loans, by limiting the interest and
other charges that could be levied on payday loans and regulating the taking out of
multiple payday loans and the rolling over of loans.51
The Australian government relied substantially on studies of payday lending
conducted by welfare organisations, consumer advocates and charities to support the
new regulations.52 The studies of payday lending conducted by these bodies showed
44
http://press.which.co.uk/whichstatements/half-of-people-taking-out-payday-loans-cannot-afford-topay-them-back/ (last visited 10 December 2013).
45
Which, ‘Credit Britain: Making Lending Work for Consumers’ (Research Report, May 2013), 12-14
and 18.
46
Ibid, 13.
47
Ibid, 18.
48
49
Ibid, 77.
50
Ibid, 78.
51
Revised Explanatory Memorandum, ‘Consumer Credit Legislation Amendment (Enhancements) Bill
2012’ (Parliament of the Commonwealth of Australia, 2012), 11.
52
Ibid, 238-239.
7
that the majority of payday loan borrowers surveyed were on low incomes, with as
many as a quarter of payday loan borrowers living below widely accepted measures
of poverty.53 These findings are consistent with the findings of financial vulnerability
amongst payday loan borrowers in the United Kingdom studies outlined above.
A national study of Australian payday lenders conducted by a major consumer
organisation, Consumer Action Law Centre, concluded that ‘poverty, financial
exclusion and hardship pervade the lives of the vast majority’ of the payday loan
borrowers surveyed.54 A second major study of payday loan borrowers in Australia
conducted by a major welfare organisation, Good Shepherd, came to the same
conclusion, that most of the borrowers surveyed ‘live in such impoverished
circumstances that notions of customer choice lose meaning.’55 This study found that,
compared to the general population, payday loan borrowers not only had lower
incomes but were more likely to have been raised in poverty, with many of these
borrowers also suffering a physical disability or mental illness.56 These studies lead to
the conclusion that the payday lending industry in Australia ‘remains deeply rooted in
a low-income demographic for its core business.’57
A further characteristic of payday loan borrowers in Australia is that many of them
resort to payday loans because they are unable to access alternative forms of credit
(such as credit cards, overdrafts and bank personal loans). 58 Cash Converters, the
largest Australian payday lender has, itself, acknowledged this, reporting that 30 per
cent of its borrowers cannot obtain credit from other types of lenders.59
In addition, the Australian studies of payday loans have consistently found that the
repeated use of payday loans – through the roll-over of loans, the taking out of a new
loan very soon after a previous loan has been repaid, or the taking out of multiple
loans with different payday lenders – is common, and that the number of Australian
borrowers using payday loans as a ‘one off’ transaction is relatively low. 60 These
studies have also observed that the repeated use of payday loans can lead to a ‘debt
spiral’ where an increasing proportion of the borrower’s income or welfare payments
is used to service his or her payday loans, leaving the borrower with a reduced
capacity to meet living expenses and leading to the borrower having to finance those
expenses out of a fresh payday loan.61
It is therefore not surprising (given the common structural features of payday loans in
the United Kingdom and Australia and the findings of the studies of payday lending
conducted in the two countries) that welfare organisations in Australia have reached
53
‘Regulation Impact Statement: The Regulation of Short Term, Small Amount Finance June 2011’ in
Revised Explanatory Memorandum, ibid, 240 and 242.
54
Z. Gillam, ‘Helping Hand or Quicksand? An Examination of High-Cost, Short-Term Lending in
Australia, 2002-2010’ (Research Report, Consumer Action Law Centre, September 2010), 60.
55
Banks et al, n 8 above, 27.
56
Ibid, 30.
57
Gillam, n 54 above, 58.
58
D. Wilson, ‘Payday Lending in Victoria – A Research Report’ (Research Report, Consumer Law
Centre Victoria Ltd, 2002), 37 and 73; Regulation Impact Statement, n 53 above, 243.
59
Regulation Impact Statement, ibid, 244 citing 2010 data provided by Cash Converters.
60
Banks et al, n 8 above, 43; Regulation Impact Statement, ibid, 250-251.
61
Gilliam, n 54 above, 26; Regulation Impact Statement, ibid, 250.
8
the same conclusion as the Bristol University study concerning the link between
payday loans and financial vulnerability:62
‘The fundamental issue with payday lending is poverty. Too many people
simply do not have enough to live on, and turn to payday lenders to make ends
meet … For these groups of people in our society, payday lending has simply
exacerbated what was already a precarious financial situation.’
Regulatory responses to payday lending in the United Kingdom and Australia
In the United Kingdom, the recent debates about the appropriate level of regulation
for payday loans have largely been concerned with the evidence that has emerged of
endemic non-compliance by payday lenders with their regulatory obligations. The
failure, in particular, of payday lenders to assess adequately whether borrowers can
afford their loans has led to the conclusion that lenders are deliberately making loans
to financially vulnerable borrowers who cannot afford to repay their loans – and that
this business model has been sustained by certain features of the market for payday
loans. The same issue of payday lenders exploiting financially vulnerable borrowers
arose in the context of the debates that preceded the introduction of a new regulatory
regime for payday lenders in Australia.63
Despite the common issue of borrower vulnerability looming large in all countries
where there is a high level of payday lending activity, there is a considerable diversity
of regulatory responses to payday lending across the globe. 64 The approach of
regulators in the United Kingdom to payday lending has traditionally been relatively
non-interventionist. The OFT, until recently, relied on the payday lending industry to
police itself via codes of practice and industry associations, with the OFT only
making incremental adjustments to the conduct of market participants. 65 This
approach also underlies the OFT’s lending guidelines, the Irresponsible Lending
Guidance. The Guidance leaves it to the payday lender to determine what factors
should be taken into account, what significance should be accorded to those factors,
and what information should be used, to assess the affordability of a loan for a
borrower, as opposed to prescribing the specific factors that must be taken into
account in making that assessment.66
Australia, in contrast to the OFT’s previous practice, has taken an interventionist
approach to payday lending. At the centre of the new regulatory regime that applies to
62
Financial Counselling Australia, ‘What Financial Counsellors Say About Payday Lending’ (Research
Report, Financial Counselling Australia, 2011) 15.
63
Regulation Impact Statement, n 53 above, 269; Wilson, n 58 above, 33. For an early discussion of
consumer credit and low-income borrowers, see D. Cayne and M. J. Trebilock, ‘Market Considerations
in the Formulation of Consumer Protection Policy’ (1973) 23 U Tor LJ 396.
64
I. Ramsay, ‘Regulation of Consumer Credit’ in G. Howells, I. Ramsay and T. Wilhelmsson (eds),
Handbook of Research on International Consumer Law (Cheltenham: Edward Elgar, 2010), 375-380.
See also L. Nottage, ‘Innovating for Safe Consumer Credit: Drawing on Product Safety Regulation to
Protect Consumers of Credit’ in T. Wilson (ed) International Responses to Issues of Credit and OverIndebtedness in the Wake of Crisis (Farnham: Ashgate, 2013); I. Ramsay, ‘Culture or Politics? Models
of Consumer Credit Regulation in France and the UK’ in Wilson, ibid.
65
Office of Fair Trading, n 14 above, 54; I. Ramsay, ‘Consumer Law, Regulatory Capitalism and the
“New Learning” in Regulation’ (2006) 28 Syd L Rev 9, 18-20.
66
See generally T. Wilson, ‘The Responsible Lending Response’ in Wilson, n 64 above.
9
payday loans in Australia are a cap on the cost of payday loans (accompanied by
restrictions on the types of costs that can be levied on payday loans) and the
prescription of a minimum term for payday loans. However, the United Kingdom has,
in the wake of extensive surveys of the payday lending industry undertaken during
2012 and 2013, taken a far more interventionist approach. This is well illustrated by
the FCA’s imposition of limits on the number of times a payday loan can be rolled
over and on the use of continuous payment authorities in connection with the
repayment of payday loans, and, most recently, its imposition of an interest rate cap
on payday loans. Coincidentally, Australia has recently attempted to introduce an
outright ban on roll-overs but has resiled from this position following extensive
lobbying by the payday lending industry.
In the United Kingdom, the debate about regulatory responses has also led to an
extensive consideration of whether interest rate caps should be imposed on payday
loans. Until the Chancellor’s announcement in November 2013 about the introduction
of a cap for payday loans (which led to the FCA imposing such a cap with effect from
2 January 2015), it appeared that the current United Kingdom government was not in
favour of intervening in the payday lending industry in that manner. Interest rate caps
are a relatively common response to concerns about the cost of credit being exorbitant
or exploitative with, for example, seventeen other European Union countries having
in place some form of restriction on the charges that can be levied on consumer credit
contracts. 67 The reintroduction of interest rate caps is, however, controversial in
countries that have previously abandoned caps and deregulated their consumer credit
markets.68 The United Kingdom is a useful example, having abolished restrictions on
the cost of consumer credit contracts when it enacted the Consumer Credit Act 1974
(UK).69 The response of the United Kingdom government to the issue of interest rate
caps – again prior to the Chancellor’s announcement – was to prefer steps that would
lead to a better informed market for payday loans over intervening in the market to
determine the terms on which payday loans would be made available.70
In Australia, although there was considerable debate as to the level at which an
interest rate cap should be set in relation to payday loans (with the Australian
government eventually settling on a more generous cap than had been initially
intended), the notion of imposing a cap on payday loans was far less controversial.
Payday loans and other consumer credit contracts were already subject to interest rate
67
Ramsay, n 64 above, 397-398; I. Ramsay, ‘“To Heap Distress Upon Distress?:” Comparative
Reflections on Interest-Rate Ceilings’ (2010) 60 U Tor LJ 707, 708-709; University of Bristol, n 6
above, 87.
68
Ramsay, n 64 above, 401. See also Business, Innovation & Skills Committee, n 29 above, 16.
69
As regards the background to this, see the ‘Crowther Report’: Department of Trade and Industry,
‘Consumer Credit: Report of the Committee’ (1971 Cmnd 4596), para 6.6.6. See also Ramsay, ibid,
711. Caps were replaced in the United Kingdom with a statutory power for courts to intervene in
consumer credit agreements where a court determines that the relationship between the lender and
borrower arising out of the agreement is ‘unfair’ to the borrower: Consumer Credit Act 1974 (UK), s
140A(1). In making this determination, courts can take into account the interest rate and the financial
vulnerability of the borrower: see further K. Aldohni, ‘Loan Sharks v. Short-term Lenders: How Do the
Law and Regulators Draw the Line?’ (2013) 40 J Law and Soc 420, 436-440; D. M. Collins, ‘Payday
Loans: Why One Shouldn’t Ask for More’ (2013) 28 JIBLR 55, 58-60.
70
Department for Business, Innovation & Skills, ‘Consumer Credit and Personal Insolvency Review:
Formal Response on Consumer Credit’ (November 2011), 3.
10
caps in the largest state market for payday loans in Australia, Queensland, as well as
in the Australian states of New South Wales and Victoria.71
The United Kingdom and Australia have traditionally taken the same approach to the
regulation of payday lending. In both countries, payday loans have been treated as no
different to other forms of consumer credit, with payday lenders subject to no heavier
a regulatory burden than other providers of consumer credit. This has changed
considerably in Australia with a new regulatory regime for payday loans having
commenced on 1 March 2013. This regime differentiates payday loans from other
consumer loans and subjects the former to a unique set of regulatory requirements,
including a ban on the charging of explicit interest on most payday loans and
restrictions on the non-interest fees that can be charged. In the United Kingdom too,
the regulatory treatment of payday loans as indistinct from other consumer loans,
following the FCA’s recent interventions, is now a thing of the past.72
A.
The regulation of payday loans in the United Kingdom
Overview
Payday loans are ‘consumer credit agreements’ under the Consumer Credit Act.73 A
payday lender must – like other providers of consumer credit – hold a credit licence74
and must, before making a loan to a borrower, assess the creditworthiness of the
borrower75 and the affordability of the loan for the borrower.76
Both the Act and the OFT (whose role here has been assumed by the FCA) provide
little guidance as to what the former inquiry requires, beyond stating that it is a
‘creditor-focussed inquiry’ into whether a prospective borrower merits the provision
of credit and that the inquiry must be undertaken on the basis of sufficient
information.77 When compared with the level of guidance provided by the OFT in
71
Credit (Commonwealth Powers) Act 2010 (NSW), s 5(1); Credit (Commonwealth Powers) Act 2010
(Qld), s 32(1); Consumer Credit (Victoria) Act 1995 (Vic), s 39(1). These caps have now been
superseded by the caps introduced into the National Consumer Credit Protection Act 2009 (Cth) by the
Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth). See further Gillam, n 54
above, 17.
72
In addition to the regulatory interventions discussed in this section of the article, a Private Members
Bill, the High Cost Credit Bill, which was tabled by Paul Blomfield MP (Labour) had its second
reading in the House of Commons on 12 July 2013 but failed to complete its passage before the end of
the 2013-2014 session. This Bill proposed that the FCA be given powers to intervene when ‘specific
features’ of payday loans are present, including banning payday loans that are unaffordable for
borrowers and restricting the amount of default fees and the roll-over of payday loans: High Cost
Credit Bill, cl 1(2) and Schedule 1. See also T. Edmonds, ‘High Cost Credit Bill Research Paper 13/44’
(House of Commons Library, 10 July 2013), 9-11.
73
Consumer Credit Act, s 8(1).
74
Ibid, s 21(1).
75
Ibid, s 55B(1).
76
Office of Fair Trading, ‘OFT 1107: Irresponsible Lending – OFT Guidance for Creditors’ (February
2011), para 4.1. Payday lenders are subject, under this Guidance, to the same obligations when
extending credit as other providers of consumer credit. This Guidance makes only very limited mention
of payday loans: (i) the OFT considers payday lenders should explain to prospective borrowers the
consequences of rolling over a payday loan (ibid, para 3.13); and (ii) in all the other references, payday
loans are used as illustrative examples (ibid, paras 3.13, 5.5, 6.25).
77
Consumer Credit Act, s 55B(3); Office of Fair Trading, ibid, para 4.22.
11
relation to the inquiry into affordability, one can readily come to the view expressed
by a commentator that the inquiry into creditworthiness is ‘largely otiose’.78
The affordability assessment is a ‘borrower-focussed inquiry’ which requires a
payday lender to assess a prospective borrower’s ability to repay the payday loan in a
‘sustainable manner’. 79 The OFT considers that repaying a payday loan in a
sustainable manner means that repaying the loan will not cause or exacerbate
financial difficulties for the borrower and the loan can be repaid when it falls due out
of the borrower’s income or savings without the borrower having to realise
investments or other assets or having to borrow further.80 Among the factors that the
OFT regards as relevant to assessing whether a payday loan can be repaid in a
sustainable manner are the cost and risk of the loan to the borrower, the financial
circumstances and credit history of the borrower and the ‘vulnerability’ of the
borrower.81 These are not factors that the OFT prescribes that a payday lender must
take into account; rather, it is left to the lender to decide, in the context of a particular
loan, which factors should be taken into account and what weight should be given to
those factors.82
A payday lender must, however, be able to defend the robustness of any affordability
assessment in the event of a regulatory challenge by the OFT.83 Failure to undertake a
reasonable assessment of a borrower’s affordability may be taken into account by the
OFT in considering whether a payday lender is engaging in ‘irresponsible lending’, a
finding that will expose the lender to the severe consequence of having its credit
licence revoked.84
Review of the UK payday lending industry
The first major regulatory study of payday lending in the UK, since the global
financial crisis, was released by the OFT in June 2010. The OFT concluded that the
UK markets for payday loans and other forms of high-cost credit (including consumer
leases and pawn-broking) were working ‘reasonably well’ in terms of filling the gap
in the credit market that was not being adequately served by mainstream credit
providers such as banks.85 The OFT did, however, have some ‘deep-seated concerns’
about the financial vulnerability of payday loan borrowers but was of the view that
addressing those concerns required broader governmental intervention – including
educational initiatives to improve the financial literacy of borrowers, strategies to
shift societal approaches to credit and subsidising the entry of mainstream lenders into
78
K. Fairweather, ‘The Development of Responsible Lending in the UK Consumer Credit Regime’ in
Devenney and Kenny, n 12 above, 95.
79
Office of Fair Trading, n 76 above, para 4.1.
80
Ibid, paras 4.3 and 4.4.
81
Ibid, para 4.10.
82
Ibid, paras 4.10 and 4.11. The OFT has made this clear in the particular context of payday loans:
83
Office of Fair Trading, ibid, 11.
84
Office of Fair Trading, n 76 above, paras 1.2, 1.5 and 4.20. The holder of a credit licence must be a
‘fit person’. The OFT, in determining whether a payday lender is a fit person, will consider whether the
lender has been engaged in business practices ‘appearing to the OFT to be deceitful or oppressive or
otherwise unfair or improper’, and the OFT may consider ‘irresponsible lending’ to be such a practice:
Consumer Credit Act, s 25(2)(d), (2A)(e) and (2B). See also Fairweather, n 78 above, 92.
85
Office of Fair Trading, n 14 above, 5 and 26-27.
12
these markets – and that the OFT, on its own, could make only a ‘limited
difference’.86
Despite that, the OFT recommended a small number of ‘incremental improvements’,
including the voluntary adoption of codes detailing best practice by the UK payday
lending industry. 87 Informal regulation such as codes of practice has been the
favoured regulatory method of the OFT in consumer markets.88 This is attributable to
the limitations on the OFT’s legal powers, the role of private groups such as industry
associations in implementing government policies and the lower costs associated with
self-regulation.89 Thus, self-regulation in the form of a code of practice for the payday
lending industry was, in the OFT’s view, ‘well balanced’ and could ‘improve the
efficiency of the markets for high-cost credit [including the market for payday loans]
in the medium to long term’.90
Following that recommendation, and a similar recommendation by BIS in November
2011,91 the four major UK payday lending industry associations – representing 90 per
cent of the market for payday loans – agreed to adopt a common code of practice.92
That code, the ‘Good Practice Customer Charter – Payday and Short-Term Loans’
was adopted in its final form in November 2012, and included commitments to (i) act
‘fairly, reasonably and responsibly’ in dealings with borrowers, (ii) provide clear
information about the total cost of a payday loan, (iii) not pressure borrowers into
taking out or rolling over payday loans, (iv) only consider rolling over payday loans
on the borrower’s request and after the risks and costs of rolling over the loan have
been explained to the borrower, (v) inform customers that payday loans are for shortterm financial needs only and not appropriate for long-term borrowing or for
borrowers in financial difficulty and (vi) carry out proper affordability assessments.
The incremental approach towards payday loans taken by the OFT in 2010 has, more
recently, been replaced by a far more interventionist approach particularly on the part
of the FCA. This is evident in the following key publications:
1.
The OFT’s ‘Payday Lending Compliance Review Final Report’ published in
March 2013, containing the results of the OFT’s investigation of compliance by
payday lenders with the Consumer Credit Act and the OFT’s Irresponsible Lending
Guidance;
2.
BIS’s ‘Making Consumer Credit Markets Fairer: BIS Report on Surveys of the
Payday Lending Good Practice Charter and Codes of Practice’ published in October
2013, containing the results of the BIS investigation of compliance by payday lenders
with the Good Practice Customer Charter;
3.
The FCA’s ‘Detailed Proposals for the FCA Regime for Consumer Credit’
also published in October 2013, which includes proposals for the reform of the
regulation of payday loans;
86
Ibid, 4, 6 and 45-46.
Ibid, 6, 46 and 53-54.
88
Ramsay, n 65 above, 18.
89
Ibid, 19.
90
91
Department for Business, Innovation & Skills, n 70 above, 12-13.
92
The four industry associations are: BCCA; Consumer Credit Trade Association; Consumer Finance
Association; and Finance & Leasing Association.
87
13
4.
The ‘Payday Loans’ report published in December 2013 by the House of
Commons’ Business, Skills and Innovation Committee;
5.
The ‘Detailed Rules for the FCA Regime for Consumer Credit’ published by
the FCA in February 2014; and
6.
The ‘Detailed Rules for the Price Cap on High-Cost Short-Term Credit’
published by the FCA in November 2014 (which had as its impetus the Chancellor’s
announcement in November 2013 that a cap would be imposed on the cost of payday
loans and which followed the FCA’s ‘Proposals for a Price Cap on High-Cost ShortTerm Credit published in July 2014).
These publications are all essentially concerned with the evidence of widespread
irresponsible lending, including the inadequacy of payday lenders’ affordability
assessments, with payday loans being made to borrowers who could not afford to
repay them and borrowers being encouraged or pressured to roll over their loans when
they failed to repay the initial loan.93
Evidence of non-compliance with the Consumer Credit Act
During 2012 and 2013, the OFT conducted a review of the extent to which UK
payday lenders were complying with their regulatory obligations including, in
particular, under the Consumer Credit Act and the Irresponsible Lending Guidelines
formulated by the OFT. The OFT inspected 50 payday lenders – these lenders
accounted for 90 per cent of the payday loans by value in the UK market – and
collected data from a total of 190 payday lenders.94 The final report released by the
OFT in March 2013 disclosed a widespread failure on the part of payday lenders to
comply with their regulatory obligations, and the OFT observed that, with ‘too many
people’ being granted loans that they could not afford to repay, payday lenders were
‘causing real misery and hardship for a significant number of payday users’.95
The OFT found that the majority of payday lenders were not conducting adequate
affordability assessments, with many cases of payday loans being made to borrowers
on very low incomes and with multiple, existing payday loans.96 The vast majority of
the payday lenders inspected by the OFT were not able to satisfy the OFT that they
had assessed whether the payday loans being made were affordable for their
borrowers, as they are required to do by the Irresponsible Lending Guidance, as
opposed to assessing simply whether they could recover the money owed by their
borrowers.97 Thus, even though about one-third of all payday loans were repaid late or
93
Office of Fair Trading, n 3 above, 2 and 10-11; Department for Business, Innovation & Skills,
‘Making Consumer Credit Markets Fairer: BIS Report on the Surveys of the Payday Lending Good
Practice Charter and Codes of Practice’ (October 2013), 3-4; Financial Conduct Authority, n 26 above,
52-53. In addition, the Competition and Markets Authority is currently investigating competition in the
UK payday lending market and is scheduled to publish its findings by June 2015.
94
Office of Fair Trading, ibid, 7-9.
95
Ibid, 2. These inspections involved site visits to the business premises of payday lenders: Office for
Fair Trading, ‘Report 1481: Annexe C – Background and Methodology’ (March 2013), 2. The data
obtained included information on the number of loans made by a payday lender, loan volumes and
default rates.
96
Office of Fair Trading, n 3 above, 10-11.
97
Ibid, 10.
14
not at all,98 payday lenders were still able to protect their loan revenues through loan
roll-overs and the misuse of continuous payment authorities.99
The OFT estimated that about 30 per cent of all payday loans were rolled over at least
once – with loan roll-overs accounting for close to 50 per cent of loan revenues for
payday lenders – and 5 per cent of all loans were rolled over four times or more (with
that 5 per cent accounting for about 20 per cent of loan revenues).100 The OFT even
found evidence of payday loans having been rolled over twelve times or more.101
Loan roll-overs were a ‘deliberate commercial strategy’ for payday lenders with close
to 90 per cent of the payday lenders inspected allowing roll-overs, with some of them
actively encouraging their borrowers to roll over loans and rolling over loans even
when the borrower had defaulted in repaying the loan.102
The OFT also found widespread non-compliance with payday lenders’ disclosure
requirements under the Consumer Credit Act. Over 80 per cent of the payday lenders
inspected did not explain to prospective borrowers all the matters, including the total
amount payable under a payday loan or the consequences of default, required by the
Act. 103 This meant that prospective borrowers were not in a position to make an
informed decision about the suitability of payday loans or to compare the loans
offered by different lenders. In addition, the OFT found that the advertisements for
payday loans on most websites operated by payday lenders were potentially
misleading, such as advertisements promoting loans as instant and not contingent on
credit history checks.104
The major finding of the OFT’s review of payday lending in the United Kingdom is
that the market for payday loans is not working optimally for many borrowers, a
significant departure from the OFT’s earlier view that this market was working
‘reasonably well’.105 Non-compliance with regulatory obligations was not confined to
a minority of rogue operators but was, instead, endemic in the market. As
commentators have noted, the OFT’s review reveals that payday lenders have ‘pushed
the boundaries of low compliance with the CCA … calling into question the fitness of
the payday lenders to hold a consumer credit licence.’106
Further evidence of lender non-compliance can be found in the complaints made by
borrowers to debt charities and consumer organisations.107 Step Change has reported
that about two-thirds of their clients had entered into payday loans under which they
were obligated to pay in excess of their monthly income. 108 Citizens Advice also
considers that one of the reasons for the massive increase in its casework involving
98
Ibid, 9.
As regards the misuse of continuous payment authorities: ibid, 3, 4, 22, 23 and 29.
100
Ibid, 9 and 14-15.
101
Ibid, 11.
102
Ibid, 11 and 14-15.
103
Ibid, 20.
104
Ibid, 18.
105
Ibid, 3.
106
Broomfield and Ryder, n 12 above.
107
108
Step Change, ‘Statistical Yearbook 2012’, 1.
99
15
payday loan borrowers is payday lenders not undertaking adequate affordability
assessments.109
Accordingly, the features of payday loans described above in this article are not only
potentially harmful to financially vulnerable borrowers but they also create a powerful
incentive for payday lenders to advance credit to such borrowers. The continuous
payment authority confers on payday lenders effective priority to the moneys in a
borrower’s bank account and can be used to collect debts from borrowers in default,
while the prevalence of roll-overs means that lenders can use the profits derived from
making successive loans to the same borrower to offset the losses arising out of
extending credit to borrowers who cannot afford loans. 110 More prescriptive
regulation that leaves these features and therefore the incentive created by them
untouched is unlikely to modify the behaviour of payday lenders.111
Evidence of non-compliance with the payday lending industry’s own code of practice
It was not surprising when, following the OFT’s report, BIS reported, in October
2013, that it had also found widespread non-compliance by payday lenders with the
Good Practice Customer Charter adopted by their industry associations. BIS
concluded, after reviewing the practices of 44 payday lenders, that ‘self-regulation is
not working effectively and compliance with key provisions [of the Good Practice
Customer Charter] is not good enough’.112
BIS found, in particular, that their survey showed only ‘fair’ compliance amongst
large payday lenders, and ‘very poor’ compliance amongst small payday lenders, in
undertaking affordability assessments.113 There was also substantial non-compliance
with the provisions of the Good Practice Customer Charter dealing with loan rollovers: nearly a quarter of the borrowers surveyed stated that they had been pressured
to roll over their payday loans and only about half of the borrowers stated that the
payday lender had clearly explained the risks of rolling over a payday loan. 114 In
addition, compliance amongst all payday lenders was ‘poor’ in relation to Charter
provisions about the use of continuous payment authorities: how these authorities
operated was not clearly explained to borrowers, and a significant number of
borrowers (approximately one fifth and one third of borrowers from large and small
payday lenders respectively) said that they had not been contacted before the lender
attempted to use a continuous payment authority to recover the moneys owed by the
borrower.115
109
Citizens Advice, ‘New Rules for Payday Lenders will Help Protect Consumers’ (Press Release, 3
October 2012).
110
K. E. Francis, ‘Rollover, Rollover: A Behavioral Law and Economics Analysis of the Payday-Loan
Industry’ (2010) 88 Tex L Rev 611, 632.
111
112
Department for Business, Innovation & Skills, n 93 above, 4. The Minister for Consumer Affairs
also stated ‘This research shows that the industry has failed to self-regulate effectively’: Department
for Business, Innovation and Skills, ‘Payday Industry not Meeting Voluntary Codes’ (Press release, 3
October 2013).
113
Department for Business, Innovation & Skills, n 93 above, 11.
114
Ibid, 10. Citizens Advice has also reported that its survey of payday loan borrowers has shown that
70 per cent of those borrowers were pressured to roll over their loans: Citizens Advice, ‘7 in 10 put
under Pressure to Roll Over Loans’ (Press Release, 5 November 2013).
115
Department for Business, Innovation & Skills, n 93 above, 12.
16
Citizens Advice has been sharply critical of the payday lending industry based on the
results of the BIS survey, claiming that the survey provides ‘further evidence that
payday lenders are not treating customers fairly … lenders aren’t carrying out proper
checks to ensure people are able to pay back the loans and are draining bank accounts
without warning, leaving people with little or no money to get by.’116
Regulatory intervention
The OFT’s report, in particular, has had a profound impact on the regulation of the
UK payday lending industry. The OFT, in the period leading up to the transfer of its
supervision of consumer credit in the United Kingdom to the FCA, has clearly
departed from its earlier policy of intervening only incrementally in the market for
payday loans and relying on payday lenders to regulate themselves.
Immediately following the release of its report, the OFT wrote to 50 payday lenders,
accounting for 90 per cent of the UK market for payday loans (many of whom had
been inspected by the OFT as part of its survey of payday lending practices), giving
them three months to prove to the OFT that they had addressed the areas of noncompliance identified in the OFT’s report or risk losing their credit licences.117 This
resulted in 19 of these 50 payday lenders exiting the payday lending market (with 4
lenders surrendering their credit licences and 15 lenders confining their business
operations to other credit markets).118
The OFT also considered that the widespread non-compliance with regulatory
obligations presented in its report was due to features of the market for payday loans
that created incentives for non-compliance – and these features could not be
‘addressed solely through securing improved compliance with relevant laws and
guidance by individual firms’.119 There were two features in particular that the OFT
felt had the potential to distort the efficient operation of this market. First, there was a
strong incentive not to undertake adequate affordability assessments. There was
‘evidence that firms compete primarily on speed and ease of loan approval’ with the
consequent risk that payday lenders, that ‘invest[ed] time and money in establishing
affordability more accurately’, could be driven out of the market by their
competitors. 120 Secondly, payday lenders were shielded from the cost to them of
borrowers defaulting, as a result of lenders not adequately assessing the affordability
of loans for borrowers, by their ability to use continuous payment authorities to
recover what was owed to them.121
116
Department for Business, Innovation & Skills, ‘Payday Industry not Meeting Voluntary Codes’
(Press Release, 3 October 2013).
117
Office of Fair Trading, ‘Payday Lending Compliance Review: Update on Progress’ (18 September
2013) at http://www.oft.gov.uk/OFTwork/credit/payday-lenders-compliance-review/ (last visited 10
December 2013). This is in addition to the 6 payday lenders that exited the market as a result of the
OFT’s survey (with 3 lenders having their credit licences revoked by the OFT and 3 surrendering their
credit licences).
118
Ibid.
119
Office of Fair Trading, ‘Report 1482: Payday Lending: Consultation on a Market Investigation
Reference’ (March 2013), 5.
120
Ibid, 9-10.
121
Ibid, 10.
17
This resulted in the OFT referring the market for payday loans to the UK Competition
Commission for investigation. 122 In June 2013, the Commission announced that it
would carry out a comprehensive investigation to determine whether there were
features of that market which prevented, restricted or distorted competition and would
report its findings by 26 June 2015.123
The OFT’s report has also formed the basis for the four regulatory interventions
proposed in October 2013 by one of the OFT’s successor agencies, the FCA and
which have now been implemented. 124 These proposals were aimed specifically at
addressing the incentives identified by the OFT for payday lenders to make loans to
borrowers who cannot afford to repay the loans and, as a consequence, ensure that
payday lenders ‘pay more attention to responsible lending’.125
The first change concerns the upgrading of the provision under the OFT’s
Irresponsible Lending Guidance that lenders should undertake an affordability
assessment into a mandatory requirement for payday lenders (and other licensed
providers of consumer credit).126 A payday lender must therefore make an adequate
assessment of affordability before extending credit to a borrower, rather than failure
to make such an assessment being only a factor that can be taken into account in
deciding whether the lender is lending irresponsibly.127
The second change, which came into effect from 1 July 2014, limits the number of
times a payday loan can be rolled over to two roll-overs per loan.128 The FCA is of the
view, shared by the OFT and consumer and welfare organisations, that roll-overs have
the potential to worsen the financial position of borrowers since the more times a
payday loan is rolled over the more likely it is the borrower is in financial difficulties
and cannot repay the loan. 129 In addition, loan roll-overs account for a
disproportionate amount of loan revenues for payday lenders and, as a consequence,
shield lenders from the consequences of providing credit without undertaking
adequate affordability assessments.130 A cap on loan roll-overs will therefore reduce
significantly loan revenues from roll-overs and also undermine significantly the
incentive lenders currently have to not adequately assess the affordability of payday
122
Office of Fair Trading, ‘Report 1492: Payday Lending: Final Decision on Making a Market
Investigation Reference’ (June 2013), 4.
123
Competition Commission, ‘Payday Lending Market Investigation: Administrative Timetable’ (7
August 2013). The Commission has identified two preliminary hypotheses, concerning whether there
are any impediments to prospective borrowers making an informed choice about the payday loans on
offer and whether there are any barriers to the entry of new payday lenders into the market:
Competition Commission, ‘Payday Lending Market Investigation: Statement of Issues’ (14 August
2013), 9-12.
124
Financial Conduct Authority, n 26 above, 53-54; Financial Conduct Authority, ‘Policy Statement PS
14/3: Detailed Rules for the FCA Regime for Consumer Credit including Feedback on FCA QCP 13/18
and “Made Rules”’ (February 2014), 10.
125
Ibid, 9 and 54.
126
Ibid, 57-58; FCA, above n 124, 32-38.
127
See nn 83-84 above.
128
Financial Conduct Authority, n 26 above, 63.
129
Ibid, 59-62. See also Business, Innovations & Skills Committee, n 30 above, 15 and Financial
Conduct Authority, n 124 above, 47-48.
130
R. J. Mann and J. Hawkins, ‘Just until Payday’ (2007) 54 UCLA L Rev 855, 897; O. Bar-Gill and E.
Warren, ‘Making Credit Safer’ (2008) 157 U Penn L Rev 1, 44-45; Francis, n 110 above, 632;
Financial Conduct Authority, n 26 above, 54.
18
loans for their borrowers. This is the key area in which the views expressed by the
Business, Skills and Innovation Committee in its December 2013 report departed
from those of the FCA. The Committee accepted the concerns expressed by the OFT
and FCA in relation to loan roll-overs but thought a cap of a single roll-over per loan
was a more appropriate response to those concerns.131
The third change, which also commenced on 1 July 2014, is the placing of a limit of
two unsuccessful attempts on the number of times a payday lender can use a
continuous payment authority to pay off a payday loan and to ban the use of
continuous payment authorities to take part payments of a loan.132 This will, like the
limit on roll-overs, significantly undermine the ability of payday lenders to shield
themselves from the consequences of poor lending decisions (by reducing the ability
of payday lenders to use continuous payment authorities to confer effective priority
on themselves to borrowers’ bank accounts and as a debt recovery tool).133
Finally, the FCA has required that all advertisements for payday loans carry risk
warnings, alerting prospective borrowers to the risk that a payday loan can lead to
‘serious money problems’.134
Interest rate caps
The Chancellor’s announcement in November 2013 that the cost of payday loans will
be capped marked a sharp shift from the stance that had previously been taken in the
United Kingdom to the issue of the cost of payday loans.135 Although the FCA had
earlier indicated that it would undertake further research on interest rate caps, the
possibility that an interest cap would, prior to the Chancellor’s announcement, be
imposed on payday loans in the United Kingdom seemed low, in view of the FCA’s
then scepticism about the efficacy of caps136 and the findings of two investigations
into interest rate caps.
The OFT, in its 2010 survey of payday lending, expressed the view that an interest
rate cap would not be ‘an appropriate solution’ to the concerns the OFT had about the
operation of the UK market for payday loans. 137 The OFT considered that the
introduction of an interest rate cap could lead to payday lenders exiting the market or
restricting the types of borrowers they were prepared to extend credit to. This
reduction in the supply of credit could cause significant detriment to borrowers who
131
Business, Innovations & Skills Committee, ‘Payday Loans: Seventh Report of Session 2013-14’
(HC 17 December 2013), 16 and 27.
132
Financial Conduct Authority, ibid, 66-67. See also Financial Conduct Authority, n 124 above, 4953. This limit will, however, be reset in the case of payday loans that have been rolled over (Financial
Conduct Authority, n 124 above, 53).
133
Ibid, 54 and 65.
134
Ibid, 69 and Financial Conduct Authority, n 124 above, 55-57.
135
G. Graham, ‘Pay-Day Loans: New Law will Cap “Overall” Cost to Customer’, The Telegraph, 25
November 2013. The term ‘interest rate cap’ has been used in this article as a generic term to
encompass all limits imposed by regulation on the charges levied by lenders on payday loans.
136
Financial Conduct Authority, ‘Occasional Paper No. 1: Applying Behavioural Economics at the
Financial Conduct Authority’ (April 2013), 34.
137
19
were already limited in their credit options or who required payday loans to finance
non-discretionary living expenses.138
The Bristol University study also expressed doubts about whether an interest rate cap
would address successfully many of the problems experienced by payday loan
borrowers.139 For example, a cap would not directly reduce the number of borrowers
rolling over their payday loans or taking out multiple payday loans.140 This report also
reached the same conclusion as the OFT that introducing a cap would lead to a
reduction in the supply of credit, particularly to borrowers on low incomes and with
limited credit options; again, payday lenders (especially small payday lenders) would
exit the market for payday loans and the lenders that remained in the market would
restrict the types of borrowers they would be prepared to lend to.141
The conclusions reached in this report convinced BIS that the introduction of an
interest rate cap for payday loans was not the ‘best solution’ to the problems the OFT
and also the Bristol University study had identified in connection with the market for
payday loans.142 Amongst these problems were the poor business practices of payday
lenders, particularly in relation to affordability assessments and disclosure, and the
rolling over of payday loans.143 As discussed above, the OFT and FCA have now
taken steps to address these problems through the OFT requiring lenders to
demonstrate compliance with their regulatory obligations and referring the market for
payday loans to the Competition Commission and the FCA proposing a series of
regulatory interventions.
The doubts about the efficacy of an interest rate cap expressed in the OFT and Bristol
University studies have now been superseded by the steps recently taken by the FCA.
In July 2014, the FCA published a proposal to introduce a cap on the cost of payday
loans.144 This proposal contained the FCA’s own study on the impact of introducing
an interest rate cap, with the FCA concluding that a cap would protect consumers
whose financial position might be worsened were they to take out a payday loan and
protect those consumers who were struggling to repay payday loans because of the
costs of such loans as well as, in general, reducing the costs of payday loans for most
borrowers. 145 The FCA did, however, acknowledge that an estimated 11% of UK
consumers who might otherwise have been able to obtain payday loans would not be
able to do so following the introduction of a cap.146 The FCA also acknowledged that
138
Ibid. See also Office of Fair Trading, n 22 above, 27-30.
University of Bristol, n 6 above, 119. The issue of interest rate caps was also the subject of a one-off
evidence session on the regulation of payday loans conducted by the Business, Innovation & Skills
Committee on 5 November 2013. Unsurprisingly, the imposition of a cap on the cost of payday loans
was supported by consumer and welfare organisations and opposed by many payday lenders: BBC
News, ‘Payday Loan Rollover Plan is Challenged by Lenders’ (5 November 2013).
140
University of Bristol, ibid, 118.
141
R. Hynes and E. A. Posner, ‘The Law and Economics of Consumer Finance’ (2002) 4 Am Law &
Eco Rev 168, 179-180; ibid, v-vi and 105-106. There is also evidence that interest rate caps, by
restricting the supply of credit to high-risk borrowers, can cause borrowers to access credit from
unlicensed (that is, illegal) sources: Mann and Hawkins, n 130 above, 886.
142
Department for Business, Innovation & Skills, ‘Government Response to the Bristol University
Report on High Cost Credit’ (March 2013), 7.
143
Ibid, 7-10.
144
Financial Conduct Authority, n 124 above, 6-7.
145
Ibid, 7, 11, 29 and 63.
146
Ibid, 11 and 61.
139
20
introducing a cap would adversely affect the supply of payday loans by increasing the
risk that only the largest payday lenders would remain in the UK payday lending
market. 147 The final version of the interest rate cap was published by the FCA in
November 2014, with this cap commencing from 2 January 2015.148
B.
The regulation of payday loans in Australia
Australia has, as noted above, taken an interventionist approach to the regulation of
payday loans. However, like the interventionist steps proposed by the FCA in October
2013 and the interest rate cap announced by the Chancellor in November 2013, the
regulatory intervention in the Australian market for payday loans is only very recent.
The current regime in Australia, which contains regulations specifically targetted at
payday loans, commenced on 1 March 2013. Before that date, Australia, in common
with the approach currently taken in the United Kingdom, treated payday loans as no
different to other contracts for the provision of consumer credit.
The Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth)
introduced in Australia, with effect from 1 March 2013, contains a set of discrete
regulations specifically directed towards payday loans. The key regulations are a
minimum term for payday loans,149 caps on the interest rate, fees and other charges
that can be levied on payday loans,150 restrictions on the rolling over of payday loans
and on borrowers taking out multiple payday loans,151 a limit on the number of times
a payday lender can use a direct debit to attempt to obtain repayment of a payday
loan,152 and a requirement for payday lenders to display risk warnings at their places
147
Ibid, 11 and 61. It should, however, be noted that, according to the FCA, payday lending was, prior
to the introduction of the cap, marginally profitable or unprofitable for many ‘high-street’ lenders: ibid,
36.
148
Financial Conduct Authority, n 1 above, 5. The cap is structured as follows: (i) all interest and fees
charged during a payday loan or when refinancing cannot exceed 0.8% of the outstanding principal of
the loan per day; (ii) default charges cannot exceed £15; and (iii) the total of all interest, fees and
charges cannot exceed 100% of the total amount borrowed (ibid, 10 and Appendix 1).
149
In Australia, the typical payday loan is for an amount between A$100 and A$300. Thus, almost all
payday loans in Australia would be regulated as either a ‘Short-Term Credit Contract’ or a ‘Small
Amount Credit Contract’. The former category – comprises secured and unsecured loans of up to
A$2000, made by a lender which is not a bank or other authorised deposit-taking institution, which
have a term of 15 days or less – are prohibited: National Consumer Credit Protection Act 2009 (Cth)
(as amended by the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth)), s
133CA(1). The latter category comprises unsecured loans of up to A$2000, made by a lender which is
not a bank or other authorised deposit-taking institution, which have a term between 16 days and one
year.
150
Lenders are prohibited from charging interest on Small Amount Credit Contracts but are permitted
to charge establishment fees, monthly fees and default fees: National Consumer Credit Protection Act
2009, ss 23A(1)(a) and 31A(1). The fees that may be charged are capped at (i) 20 per cent of the total
amount of the loan for any establishment fee, (ii) 4 per cent of the total amount of the loan for any
monthly fee and (iii) twice the total amount of the loan for any default fee (excluding the costs of
enforcement): ibid, ss 31A(2) and (3), and 39B(1) and (3).
151
Lenders are prohibited from entering into a Small Amount Credit Contract with a borrower where
there is a presumption that such a loan will be unsuitable for the borrower. A Small Amount Credit
Contract will be presumed to be unsuitable where the borrower is in default under another Small
Amount Credit Contract or has in the previous 90 days borrowed money under two or more other
Small Amount Credit Contracts: ibid, ss 123(1)(a), (2)(a) and (3A), and 133(1)(a), (2)(a) and (3A).
152
Lenders are limited, in terms of Small Amount Credit Contracts, to two unsuccessful attempts when
using a direct debit to obtain repayment of such a contract: ibid, s 39C(1); National Consumer Credit
21
of business and on their websites.153 Two of these regulations – limiting the number
of times a direct debit can be used to repay a payday loan to two unsuccessful
attempts, and requiring the publication of risk warnings – are framed in equivalent
terms to the corresponding regulatory interventions proposed in October 2013 by the
FCA.
The passage of these regulations was a highly contested process. A Bill to regulate
payday loans, prepared by the Australian Treasury following a period of public
consultation, was introduced into the Australian Federal Parliament in September
2011. During hearings before the Parliamentary Joint Committee on Corporations and
Financial Services, Treasury officials made clear that the principal purpose of the
regulations was to ‘reduce the negative financial and social impacts of the relatively
high cost, in dollar terms, of access to credit by those who can least afford it’.154
Similar statements in the Explanatory Memorandum that accompanied the Bill155 and
in the Regulatory Impact Statement156 demonstrated the government’s acceptance that
regulatory intervention was necessary to protect financially vulnerable borrowers
from the harm that could be caused by them entering into payday loans.
The Bill – and, in particular, the provisions in the Bill relating to the imposition of a
cap on the cost of payday loans and the prohibitions on rolling over payday loans and
multiple payday loans – met with strong opposition from the Australian payday
lending industry. Payday lenders and the industry association, the National Financial
Services Federation, initiated a concerted large-scale media and lobbying campaign
against the Bill. Cash Converters, for instance, used the names, addresses and images
of thousands of its customers in an on-line campaign, with these customers portrayed
as opponents of the proposed cap.157 In their submissions to the Parliamentary Joint
Committee, the National Financial Services Federation and payday lenders asserted
that instances of harm to borrowers from payday loans were extremely low158 and that
the majority of payday loan borrowers were not financially vulnerable.159 This was
repeated in the Committee hearings with the National Financial Services Federation
claiming that ‘the vast majority of our customers are neither disadvantaged nor
Protection Regulations 2010 (Cth) (as amended by the National Consumer Credit Protection
Amendment Regulation 2012 (No. 4)), reg 79C(1).
153
National Consumer Credit Protection Regulations 2010, regs 28XXA and 28XXB. The content of
the risk warning is prescribed by this Regulation and the warning must include the following: ‘Do you
really need a loan today? It can be expensive to borrow small amounts of money and borrowing may
not solve your money problems.’
154
Parliamentary Joint Committee on Corporations and Financial Services, ‘Consumer Credit and
Corporations Legislation Amendment (Enhancements) Bill 2011’ (Joint Committee 24 October 2011),
72.
155
Explanatory Memorandum, ‘Consumer Credit and Corporations Legislation Amendment
(Enhancements) Bill 2011’ (Parliament of the Commonwealth of Australia, 2012), 60-61.
156
Department of Finance and Deregulation, ‘The Regulation of Short Term, Small Amount Finance’
(Regulation Impact Statement, June 2011), 6-7, 15 and 20-21.
157
Cash Converters, ‘No Cap Campaign’ at http://www.nocap.com.au/ (last visited 10 December
2013).
158
National Financial Services Federation, ‘Submission to the Parliamentary Joint Committee on
Corporations and Financial Services’ (14 October 2011), 6.
159
Ibid, 22; Cash Converters, ‘A Submission to the Parliamentary Joint Committee on Corporations
and Financial Services on the Consumer Credit and Corporations Legislation Amendment
(Enhancements) Bill 2011’ (October 2011), Attachments 4, 5 and 22.
22
vulnerable’.160 Unsurprisingly, these claims were diametrically opposed to the views
on payday loans expressed by consumer and welfare organisations.161
The views advanced by the payday lending industry proved persuasive with the
Parliamentary Joint Committee rejecting the reforms to payday lending contained in
the Bill. 162 The Committee was, in particular, unconvinced of the vulnerability of
payday loan borrowers as a whole and accepted the position advanced by payday
lenders that there was a ‘growing number of middle income earners accessing the
short-term loan market’ and these borrowers ‘cannot be considered to have the same
vulnerabilities as lower income earners’.163
Following this, major changes were made to the Bill during the course of 2012. The
version of the Bill that was enacted was considerably less interventionist than
originally drafted. In addition, the most important of these changes – to the original
prohibitions on rolling over payday loans and multiple payday loans, and to the
original cap on the cost of payday loans – were more consistent with the views
expressed by the payday lending industry than those of consumer and welfare
organisations. While the issue of borrower vulnerability was not, in isolation,
determinative of all these changes, it was, nonetheless, central to the Committee’s
rejection of the original Bill.
The first major change to the original Bill was the removal of the prohibitions on the
rolling over of payday loans and borrowers entering into multiple payday loans. This
outright ban on roll-overs was a far more aggressive response to concerns about rollovers than the FCA’s response which was to limit roll-overs to two per loan. These
prohibitions were, in the final version of the Bill, replaced with a presumption of
unsuitability: a lender cannot make a payday loan to a borrower if that loan is
presumed to be unsuitable for the borrower.164 A payday lender is therefore free to
refinance a payday loan (or to enter into a payday loan with a borrower who has other
payday loans outstanding or who has only recently repaid a payday loan) provided the
lender undertakes ‘reasonable inquiries’ into the borrower’s financial position and
requirements and, based on those inquiries, concludes that the borrower will be able
to repay the loan and that the loan meets the borrower’s requirements.165
This change was consistent with the changes to the Bill pressed for by the Australian
payday lending industry. 166 Moreover, these new presumptions rely on the payday
lender to protect the interests of a vulnerable prospective borrower by not making a
160
Parliamentary Joint Committee on Corporations and Financial Services, n 154 above, 50.
Committee members highlighted the discrepancies between the payday lending industry and
consumer and welfare organisation positions, stating, ‘We are getting a complete disconnect between
what industry is saying, and, to be blunt, what the consumer movement is saying. I am not quite sure
we are looking at the same things’: ibid, 69.
162
Parliamentary Joint Committee on Corporations and Financial Services, ‘Inquiry into Consumer
Credit and Corporations Legislation Amendment (Enhancements) Bill 2011’ (Joint Committee
December 2011), 114.
163
Ibid, 113-114.
164
See n 151 above.
165
Australian Securities and Investments Commission, ‘Credit Licensing: Responsible Lending
Conduct’ (Regulatory Guide 209, September 2013), 7-8.
166
National Financial Services Federation, Submission to Treasury: Amendments to the Consumer
Credit and Corporations Legislation Amendments Enhancements Bill 2011 (8 May 2012), 20.
161
23
loan to that borrower, whereas the lender’s own interests may create an incentive for
the lender to determine that a loan is suitable when it is not. It was this that led the
OFT to reject proposals for a prescriptive approach to affordability assessments:
‘Given the evidence we have found of significant underlying incentives for firms to
lend irresponsibly, we think that requiring lenders to follow particular processes when
they assess affordability would be unlikely to completely tackle the problem’.167
The second major change to the Bill was that the cap imposed on the cost of payday
loans was revised significantly upwards. In the original bill, a payday lender was
permitted to charge only three types of fee, and not interest, on a payday loan: an
establishment fee of up to a maximum of 10 per cent of the total amount of the loan; a
monthly fee of up to a maximum of 2 per cent of the total amount of the loan per
month; and a default fee (excluding enforcement costs) of up to twice the total
amount of the loan.168 In the version of the Bill that was enacted, the cap for the
establishment fee and the monthly fee was altered to 20 per cent and 4 per cent
respectively. As with the removal of the prohibitions on roll-overs and multiple
payday loans, this change to the caps brought the caps closer to the position of the
payday lending industry169 than to that of consumer and welfare organisations which
preferred retaining the original cap.170The Australian approach to the regulation of
payday loans, like the stance now being taken in the United Kingdom by the FCA,
involves intervening in the market for payday loans to prescribe the terms on which
those loans can be made available to borrowers.
Empirical study of the physical location of Australian payday lending stores
Australian consumer and welfare organisations have, over the last decade,
consistently claimed that payday lenders’ business operations or stores are more likely
to be physically located in socio-economically disadvantaged areas. These claims, if
borne out, have important implications for the debate on how best to regulate payday
lending and, in particular, protect financially vulnerable borrowers – since this would
be further evidence that the principal users of payday loans are more likely to be
financially vulnerable borrowers and undermine the opposing claims routinely made
by payday lenders in Australia that many of their borrowers are not financially
vulnerable.
To date, however, no systematic study has been conducted to investigate the
observed, anecdotal reports of Australian consumer and welfare organisations as to
the socio-economic profiles of payday loan borrowers. Our study of the physical
location of payday lending stores in Australia is the first Australian study of this type.
We have used the socio-economic status of the areas in which payday lending stores
are located as a proxy for information about the socio-economic profile of borrowers,
as payday lenders are more likely to choose locations for their stores which place the
stores in closer proximity to a greater number of likely borrowers. 171 In addition,
while our study investigates payday lending in Australia, our findings have
167
See n 150 above.
169
National Financial Services Federation, n 166 above, 9.
170
Consumer Action Law Centre, Submission to Treasury: Amendments to the Consumer Credit and
Corporations Legislation Amendments Enhancements Bill 2011 (7 May 2012), 8.
171
Andersen, n 9 above, 5.
168
24
implications beyond Australia for other countries in which payday lending is
prevalent, particularly countries like the United Kingdom where payday loans that are
available to borrowers are structurally the same, and pose many of the same problems,
as payday loans in Australia.
Our study draws on scholarship from the United States on the physical location of
payday lending stores. Those studies have established that payday lending stores are
more likely to be located in areas that are relatively socio-economically disadvantaged
and thus have a higher proportion of financially vulnerable borrowers compared to
areas that are relatively socio-economically advantaged. We have used this
scholarship to create our methodology for the geographic ‘mapping’ of payday
lending stores in the Australian state of Victoria. The relevance of these United States
studies to Australia as well as the United Kingdom is supported by the similarities
between payday loans in the United States and payday loans in Australia and the
United Kingdom. Payday loans in the United States are unsecured loans for, typically,
US$250-US$500 and terms of 14 to 18 days, with repayment of the loan usually
timed to coincide with the borrower’s receipt of income.172 Again, as is the case with
Australia and the United Kingdom, payday loans in the United States are very
expensive with an average APR of 339 per cent173 and are generally used to pay for
ordinary living expenses.174
A.
United States studies of payday lender location
In the United States, the intersection of law and demographics has produced a number
of seminal studies that have shed light on ‘otherwise imperceptible legal
inefficiencies’ or biases in the field of consumer credit.175 Notable examples include
studies into the lending patterns of traditional lenders which have found racial biases
in the approval of home mortgage applications, 176 and ‘disinvestment’ by banks
(where the aggregate deposits accepted by a bank exceed the loans advanced by the
bank) in lower income areas.177
Similar investigations in the United States into the demographics of non-traditional
consumer credit lending – as exemplified by payday loans – have also resulted in
significant findings concerning the demographics of borrowers of payday loans.
Studies of the location of payday lending stores in the United States have consistently
found that those stores are more likely to be located or concentrated in socioeconomically disadvantaged areas.178 One such study of payday lenders in California
172
Consumer Finance Protection Bureau, ‘Payday Loans and Deposit Advance Products’ (White Paper,
24 April 2013), 15.
173
Ibid, 16.
174
PEW Charitable Trusts, ‘Payday Lending in America: Who Borrows, Where They Borrow and
Why’ (Safe Small-Dollar Loans Research Project, July 2012), 13.
175
S. M. Graves and C. L. Peterson, ‘Predatory Lending and the Military: The Law and Geography of
“Payday” Loans in Military Towns’ (2005) 66 Ohio St LJ 653, 695.
176
S. R. Holloway, ‘Exploring the Neighborhood Contingency of Race Discrimination in Mortgage
Lending in Columbus, Ohio’ (1998) 88 Annals of the Association of American Geographers 252; M.
Reibel, ‘Geographic Variation in Mortgage Discrimination: Evidence from Los Angeles’ (2000) 21
Urban Geography 45.
177
R. G. Boehmer, ‘Mortgage Discrimination: Paperwork and Prohibitions Prove Insufficient – Is it
Time for Simplification and Incentives?’ (1993) 21 Hofstra L Rev 603.
178
N. Martin and E. Longa, ‘High-Interest Loans and Class: Do Payday and Title Loans Really Serve
the Middle Class?’ (2012) 24 Loy Consumer L Rev 524, 552.
25
found that payday lending stores tended to be located in areas with a higher
proportion of ethnic minorities, people who rent their dwellings and people with
lower levels of educational attainment, and higher levels of poverty and
unemployment.179 Equivalent conclusions have been reached in relation to studies of
payday lending store location in Colorado (areas with a higher proportion of ethnic
minorities, immigrants, military personnel and persons in low-skilled occupations),180
North Carolina (areas with a higher proportion of ethnic minorities and people with
lower levels of educational attainment)181 and Washington state (areas with a higher
proportion of ethnic minorities and military personnel, and higher levels of
poverty). 182 These findings are consistent with the first major national survey of
payday loan borrowers in the United States conducted by the PEW Charitable Trusts
during 2011 to 2012. That survey found that payday loan borrowers were more likely
to be renters than homeowners, to have lower than average household incomes and
lower levels of educational attainment, to belong to an ethnic minority, and to be
disabled or unemployed.183
The most famous study of the demographics of payday lending in the United States is
the 2005 Graves and Peterson project that investigated the relationship between the
location of payday lending stores and the location of military bases. 184 Military
personnel and their families typically have lower incomes compared to the rest of the
population. In response to claims that payday lenders were deliberately targetting
military personnel, the authors of the study surveyed almost 15,000 payday lending
stores across 20 US states. The authors concluded that the most influential
determinant of the location of payday lending stores was the presence of a military
base: ‘with striking regularity, the counties and ZIP codes most overrepresented by
payday lenders had one thing in common: large military populations’.185 The findings
of this study were drawn on by the Department of Defence when they conducted their
own investigation about the impact of payday lending on military families186 and by
the United States Congress which, in 2006, capped the annual interest rate for loans,
including payday loans, to military personnel at 36 per cent.187
These US studies have a number of common methodological elements which we have
made use of in our study. They use geographic mapping of areas, usually by reference
179
W. Li, L. Parrish, K. Ernst and D. Davis, ‘Predatory Profiling: The Role of Race and Ethnicity in
the Location of Payday Lenders in California’ (Research Report, Centre for Responsible Lending,
2009), 14-15.
180
Gallmeyer and Roberts, n 13 above, 533-534.
181
M. L. Burkey and S. P. Simkins, ‘Factors Affecting the Location of Payday Lending and Traditional
Banking Services in North Carolina’ (2004) 34 Review Of Regional Studies 19, 202-203.
182
A. Orron, ‘Easy Prey: Evidence for Race and Military Related Targeting in the Distribution of
Payday Loan Branches in Washington State’ (2006) (Consulting Report, Department of Statistics,
University of Washington).
183
PEW Charitable Trusts, n 174 above, 10-11.
184
Graves and Peterson, n 175 above.
185
Ibid, 822.
186
I. Berg, ‘Geography, Predatory Lending and the State: A Path Towards Using GIS to Effectively
Engage National Public Policy’ (2012) Plenum 36, 39.
187
C. E. Kubrin, G. Squires, S. M. Graves and G. Ousey, ‘Investigating the Social Ecology of Payday
Lending: Does Fringe Banking exacerbate Neighborhood Crime Rates?’ (2011) 10 Criminology and
Public Policy 437, 440. This interest rate cap, however, does not seem to have deterred payday lenders
from targetting military personnel: J. Silver-Greenberg and P. Eavis, ‘Service Members left Vulnerable
to Payday Loans’, The New York Times, 21 November 2013.
26
to area postcodes, and draw on national census data to provide insights about the
socio-economic characteristics of those areas – pointing to factors that are likely to
increase the socio-economic disadvantage or financial vulnerability188 of those who
live there. 189 The studies ‘map’ the location of payday lenders by using state or
national financial services registers to obtain the physical locations of the lenders’
operations or stores. Regression tests are typically used to determine whether there is
a relationship between the location of stores and areas where greater numbers of
socio-economically disadvantaged people live. While there is some variation across
these studies,190 the studies are, as seen from the leading examples summarised above,
consistent in terms of their findings as to presence of payday lending stores in socioeconomically disadvantaged areas.
B.
Australian study of payday lender location
As noted above, the physical location of payday lending stores in Australia has not, to
date, been subjected to systematic investigation. The study contained in this article is
the first such investigation of payday lending in Australia. Prior to this study, the only
evidence as to the putative link between the location of payday lending stores and
areas displaying socio-economic disadvantage has been of the anecdotal variety
primarily from consumer and welfare organisations.
As early as 2002, when the level of payday lending was relatively low in Australia,
the Executive Director of Consumer Law Centre Victoria, Chris Field, noted claims
by consumer and welfare organisations as well as payday loan borrowers that payday
lenders were targetting Victorians on low incomes.191 In addition, a report published
in that same year by a major Australian consumer organisation, Consumer Law
Centre Victoria, claimed that, in Victoria, payday lending stores tended to be located
in areas of socio-economic disadvantage. 192 Australian consumer and welfare
organisations have, since 2002, consistently claimed that payday lending stores are
more likely to be located in lower-income or socio-economically disadvantaged areas,
chiefly because this places payday lenders in closer proximity to a greater number of
likely borrowers.193 The importance of store location has been implicitly borne out by
a study published in 2010 by Consumer Action Law Centre which found that
geographic proximity was a factor for the majority of payday loan borrowers
surveyed when choosing to take out a payday loan.194
188
Other measures of socio-economic disadvantage or financial vulnerability include delaying
necessary healthcare, difficulty in paying mortgage, rent and utility bills, household food insecurity and
going without a telephone service are said to indicate economic hardship, see B. Melzer, ‘The Real
Costs of Credit Access: Evidence from the Payday Lending Market’ (2011) 126 QJE 517, 518.
189
Gallmeyer and Roberts, n 13 above, 527. For example, in this study the authors used census data to
create an economic profile of areas in Colorado using three variables: household income; the
percentage of the population falling below a threshold linked to the official poverty line; and
occupation.
190
Some studies, for example, have found that the key relationship is that between the location of
payday lending stores and areas with lower levels of educational attainment as distinct from simply
lower levels of household income: eg W. P. Wheatley, ‘Economic and Regional Determinants of the
Location of Payday Lenders and Banking Institutions in Mississippi: Reconsidering the Role of Race
and Other Factors in Firm Location’ (2010) 40 Review of Regional Studies 53.
191
C. Field, ‘The Sharks are Circling – A Report on Pay Day Lending’ (2002) 30 ABLR 148, 149.
192
Wilson, n 58 above, 9 and 33. Consumer Law Centre Victoria is now Consumer Action Law Centre.
193
Mann and Hawkins, n 130 above, 863; Andersen, n 9 above, 5.
194
Gillam, n 54 above, 6, 66 and 119.
27
Our study of the physical location of payday lending stores tests two hypotheses. The
first hypothesis is that there is a relationship between the location of payday lending
stores in Victoria and the socio-economic status of the areas in which these stores are
located, specifically, that payday lending stores are more likely to be in locations
where socio-economic indicators of disadvantage are present. That, in turn, indicates
a greater likelihood that people in the areas where the stores are located are
financially vulnerable. The second hypothesis of the study is that in areas where
payday lending stores ‘cluster’ – where there are three or more stores – it is more
likely that such an area will have indicators of socio-economic disadvantage.
Methodology
To examine the relationship between the location of payday lending stores and the
socio-economic advantage or disadvantage of the areas in which those stores are
located, we performed regression tests to test the relationship between two variables:
the location of a payday lending store; and the socio-economic status of the area in
which the store is located.
The first step in this process was the creation of a database of payday lending stores in
the city of Melbourne and smaller, regional cities in the state of Victoria.195 As there
is no register of payday lenders in Victoria or national register of payday lenders in
Australia, a number of steps were taken to ensure that, at a minimum, the majority of
payday lending stores in Victoria were accurately located. The database was created
through searching telephone directories (including on-line directories) for all financial
service providers of small amount loans in Victoria, on-line searches of these lenders
and the verification of selected areas by members of the research team who visited
those areas throughout 2012. This research found 123 payday lending stores trading in
Victoria at December 2012 (other financial service providers of personal loans such
as banks and mortgage brokers were excluded through limiting the database to
providers of loans that met the statutory definition of a ‘Small Amount Credit
Contract’196).
This database of payday lending stores was then used to identify the areas (suburbs)
in metropolitan Melbourne and regional Victoria where three or more payday stores
were currently trading – there was a total of 20 such areas. As a verification measure,
members of the research team visited four of those 20 areas in 2012 in order to
confirm that the stores listed in the database as being located in those areas were
currently trading.197
195
The capital of Victoria, Melbourne is Australia’s second largest city (after Sydney) and Victoria is
the second most populous state, after New South Wales, with 5,679,000 people, Australian Bureau of
Statistic, Australian Demographic Statistics, December 2012 (Statistical Data set 3101.0):
http://www.abs.gov.au/ausstats/[email protected]/mf/3101.0 (last visited 30 December 2013).
196
See n 149 above.
197
One regional area and three metropolitan areas were visited and the physical addresses in the
databases checked by a member of the research team who went into each store to confirm that each was
offering loans that met the statutory definition of a small amount loan.
28
To determine the socio-economic status of an area, we used data from the four SEIFA
(Socio-economic indices for Areas) indicators provided by the Australian Bureau of
Statistics:
a)
b)
c)
d)
Index of Relative Socio-economic Advantage and Disadvantage;
Index of Relative Socio-economic Disadvantage;
Index of Economic Resources; and
Index of Education and Occupation.198
These SEIFA indices are a widely used data source for determining the collective
socio-economic characteristics or Socio-Economic Status (SES) of the people living
in a given area. 199 The indices are constructed using a weighted combination of
selected variables, including household income, educational attainment, levels of
unemployment, occupation, housing size and housing cost.200 National census data is
converted into those variables to measure the general socio-economic characteristics
of all areas in Australia, by postcode. These indices give a score, standardised against
a mean of 1000, with a standard deviation of 100, meaning that the average SEIFA
score for SES will be 1000 and the middle two-thirds of SEIFA scores will fall
between 900 and 1100 (approximately). A lower SEIFA score indicates relatively
greater socio-economic disadvantage. For example, areas with lower scores are likely
to have households with lower incomes, lower levels of educational attainment or
higher levels of people in low-skilled occupations, and people in those areas are more
likely to be financially vulnerable.
Results
We located 123 stores with accurate location data for which SEIFA scores could be
identified. The SEIFA rankings for Victoria were arrayed from lowest to highest and
apportioned into quartiles (after weighting for population of the SEIFA areas). Table
1 reports the proportion of stores in each quartile for each of the four different SEIFA
indices. As we are confident that we had identified all – or virtually all – of the pay
day stores in Victoria, it means that statistical tests are not strictly necessary: we are
198
Drawn from the Australian National Census data, SEIFA comprises four indices of relative socioeconomic advantage and disadvantage assessed in terms of people’s access to material and social
resources. The first index is the Index of Relative Socio-economic Advantage and Disadvantage which
measures 25 variables, including the percentage of people in that area on low incomes, the percentage
of houses without internet connection and the percentage of young people who have not completed
secondary education. The second is the Index of Relative Socio-economic Disadvantage which
measures 16 variables, including the percentage of people in that area on low incomes, the percentage
of families with unemployed parents and the percentage of houses without internet connection. The
third is the Index of Economic Resources which measures 14 variables, including the percentage of
people in that area on low incomes, the percentage of houses without cars and the percentage of houses
on low rent. The fourth is the Index of Education and Occupation which measures 9 variables,
including the percentage of young people who have not completed secondary education and the
percentage of people who work in low-skilled occupations. These indices are relative measures, that is,
they give information about an area’s socio-economic profile relative to other areas.
199
SEIFA is commonly used by government agencies or departments and research institutions in
Australia to determine areas that require increased welfare funding and services and research into the
relationships between socio-economic disadvantage and, for example, health or education outcomes:
http://www.abs.gov.au/websitedbs/censushome.nsf/home/seifa (last visited 10 December 2013).
200
See further Australian Bureau of Statistics, ‘Socio-Economic Indexes for Areas (SEIFA) 2011’
(ABS Technical Paper 2033.0.55.001, March 2013).
29
dealing with populations, not samples. Chart A shows the proportion of stores below
and above the SES mean for Victoria on each of the four SEIFA indices. In the case
of the Index of Economic Resources, the effect is at its most dramatic: more than
three-quarters (78 percent) of stores are located in lower SES areas (that is, under the
mean).
Nevertheless, and to banish any doubt, we tested the proportions against the
hypothesis that payday lending stores, if randomly scattered across the SES spectrum,
should be found in equal numbers and proportions among the four quartiles. The
Significance column in Table 1 reports a Goodness of Fit test for payday lending store
locations within the hypothesis that each SES quartile should contain 25 percent of
stores each. We also tested for each of the four different ABS SEIFA indices. As can
be seen, the first three indices are statistically significant at the 0.01 level. If we
accounted for Finite Population Correction (FPC), on the assumption that a very high
proportion of actual stores had been identified, the final SEIFA index – Index of
Education and Occupation – would undoubtedly also be statistically significant.
As regards our first hypothesis, our results show that payday lending stores are overrepresented in the two lowest SES quartiles and strongly under-represented in the
highest SES quartile.
30
Table 1 Proportions of Pay Day stores in each SEIFA quartile (Four Different SEIFA
Indices)201
SES Measure
Advantage &
Disadvantage
Disadvantage
Economic
Resources
Education &
Occupation
Lowest
Quartile
(percent)
Low Mid
Quartile
(percent)
Upper Mid
Quartile
(percent)
Highest
Quartile
(percent)
Chi-square
statistic
24.39
37.40
25.20
13.01
14.65
**
31.71
39.84
35.77
38.21
27.64
15.45
4.88
6.50
28.18
40.73
**
**
30.89
26.83
21.14
21.14
3.34
201
The Significance column gives result for Goodness of Fit test against null hypothesis that each
quartile contains 25 per cent of observations. For significance levels, one asterisk indicates significance
at the 0.05 level; while two asterisks indicates significance at the 0.01 level (df=3). We also tested the
hypothesis that the top half and bottom half contained 50 per cent of observations: significance is
identical to that shown for the quartiles (df=1).
Signif
31
Chart A. Proportion of Payday Stores in Victoria Located in Areas Above and Below
the Mean Statewide SES
SEIFA: Advantage & Disadadvantage
SEIFA: Disadvantage
SEIFA: Economic Resources
SEIFA: Education & Occupation
80
60
40
20
0
20
40
60
80
percent percent
Lower Half of SES
Upper Half of SES
Payday lending stores are often found clustered together in particular areas – often
several stores can be seen amid shopping strips, sometimes side by side. Is it the case
that these concentrations tend to be located in low SES areas? We tested this
hypothesis by asking whether the payday lending stores that were found clustered
close together tended to be in low SES areas. Table 2 reports regressions where the
SES percentile of each store was regressed against the level of concentration (number
of stores with the same postcode). We tested this for all four ABS SEIFA indices. As
can be seen from the table the coefficient ('Concentration') is negative, or downward
sloping – and for all four indices.
Thus, in terms of our second hypothesis, we can state that, on average, those payday
lending stores found clustered close together with one another tended to be in slightly
lower SES locations. Again, since we are dealing with populations (or near
populations), not samples, statistical tests are not strictly necessary.
Table 2. Summary of Regression Results: SES of Pay Day Store Location With
Concentration Level (Four Different SEIFA Indices)
DV
Variable
Advantage & Disadvantage Concentration
Disadvantage
Concentration
Economic Resources
Concentration
32
B
T-stat
T-sig
-0.832034
-0.338997
-1.259119
-0.8500
-0.3520
-1.3550
0.3971
0.7254
0.1779
Education & Occupation
Concentration
-0.109505
-0.1010
0.9199
Another way of conceptualising this relationship between concentrations of payday
lending stores and low SES areas would be to not regress the SES percentile of
individual payday lending stores on concentration level, but the SES percentile of the
areas (that contain payday lending stores). In Table 3, we report the regressions for all
four SEIFA indices – and again, the coefficients for all four regressions are negative.
Regardless of which SEIFA index is chosen, the relationship still holds.
Table 3. Summary of Regression Results: SES of Suburbs Containing Pay Day Stores
With Concentration Level (Four Different SEIFA Indices)
SEIFA Measure
Variable
B
T-stat
T-sig
Advantage & Disadvantage
Disadvantage
Economic Resources
Education & Occupation
Concentration
Concentration
Concentration
Concentration
-2.324831
-1.253188
-1.285446
-2.096774
-1.1820
-0.6650
-0.6550
-0.9690
0.2422
0.5090
0.5151
0.3367
Conclusion
The exponential growth of payday lending in the United Kingdom and Australia, in
the aftermath of the global financial crisis of 2008, has led to increased regulatory
scrutiny in both countries of the practices of payday lenders and the consequences for
borrowers of using payday loans. Australia has recently introduced reforms designed
to protect borrowers, including limits on the interest rate and other fees that lenders
can charge on payday loans and restrictions on the refinancing of payday loans.
Similar measures have also recently been proposed in the United Kingdom. This
marks, in these two countries, a sharp departure from the previous regulatory
approach of treating payday loans as no different to other forms of consumer credit.
This change in the regulatory approach to payday loans has largely been driven by the
matter of borrower vulnerability. Consumer and welfare organisations in the United
Kingdom and Australia have maintained that payday loans cause substantial hardship
to financially vulnerable borrowers and, moreover, that payday lenders deliberately
target such borrowers by making loans to borrowers who cannot afford those loans.
Unsurprisingly, this view is strongly contested by payday lenders and their industry
associations.
We have used the physical location of payday lending stores to investigate whether, in
the Australian state of Victoria, the claim that payday lenders are targetting
financially vulnerable borrowers can be sustained. The socio-economic status of the
area in which a payday lending store is located has been used by us as a proxy for
information about the socio-economic profile of the borrowers in that particular area.
Our study of the physical location of the 123 payday lending stores trading in Victoria
has shown that these stores are over-represented in areas that display relatively greater
socio-economic disadvantage and are strongly under-represented in areas that display
the greatest socio-economic advantage. In addition, the areas in which three or more
payday lending stores are clustered tend to be areas that are socio-economically
33
disadvantaged. The findings of our study confirm the claims of Australian consumer
and welfare organisations that payday lenders are more likely to base their stores in
socio-economically disadvantaged areas.
Our findings support the claims made by consumer and welfare organisations in
Australia, namely that consumers who take out payday loans are more likely to be
persons who are financially vulnerable and that payday lenders are deliberately
targetting this type of borrower. This is in stark contrast to the claims advanced by
payday lenders in Australia – and in the United Kingdom – about the profile of their
borrowers. An area which is socio-economically disadvantaged will have a higher
proportion of financially vulnerable persons compared to areas that are relatively
socio-economically advantaged. The location of a store therefore yields valuable
information about the persons who are the likely customers of that store, as payday
lenders are more likely to choose locations that place their stores in closer proximity
to a greater number of potential borrowers.
The information derived from our study about the users of payday loans in Victoria
thus also provides support for the regulatory intervention that has taken place in
Australia to protect financially vulnerable borrowers. Furthermore, our study has
implications beyond Australia for the debate, about the appropriate level of regulation
for payday loans and how best to protect payday loan borrowers who are financially
vulnerable, in countries where the payday loans that are available are the same or very
similar to their Australian counterparts. A prime example is the United Kingdom.
Payday loans in the United Kingdom and Australia are structurally the same, tend to
be used in both countries to pay for everyday living expenses, and carry the same
disadvantages for financially vulnerable borrowers in both countries. The findings of
our study are also consistent with the rationale – the protection of financially
vulnerable borrowers – underlying the FCA’s regulatory interventions in the United
Kingdom payday lending market.
34

Payday Lending Regulation and Borrower Vulnerability in the UK

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