The chief executive of the Consumer Finance Association (CFA) John Lamidey is reflecting on the swelling tide of political opinion against the payday lending industry.
“You have to accept that there is a political agenda. We are very easy to demonise.”
As chief executive of the Consumer Finance Association (CFA), which represents eight of the nine largest UK payday lenders, he is the man on the frontline defending an industry much maligned, if not always well understood.
As a credit product, payday loans sit in the ‘alternative’ category alongside practically all lending methods that are not standard bank loans, credit card or overdraft borrowing.
The industry has attracted vociferous criticism from consumer groups and politicians over the astronomical rates of APR, some above 4,000%, which are charged on the loans.
And, as economic uncertainty has restricted access to more ‘traditional’ lending avenues, so the demand has grown for alternative credit products with high interest rates.
Lamidey is currently the man in the trenches defending eight of the UK’s nine largest payday lenders.
He won’t mind the military metaphor. Before entering the credit industry, he served in the British Army for 16 years, leaving as a major in 1986, the same year he was awarded an MBE.
From the army, Lamidey joined the Office of the Data Protection Registrar, now the Information Commissioner’s Office, before a brief stint at Infolink, which was absorbed into Equifax just months after Lamidey joined.
A short while later he became a director of the Consumer Credit Association – a trade body representing the Home Credit sector – which led him neatly to his present position at the CFA. With that background, defending alternative credit products should be no problem.
“In the UK we are very good at pigeon-holing consumers as prime or sub-prime borrowers, and that simply is not true because there are a whole bunch of people who are non-standard,” he says. “About one in four consumers sit in the middle and that is true with payday customers. We do not regard payday loans as a sub-prime product.”
The CFA’s website identifies the typical payday loan customer as a young adult or in early middle age, relatively free of financial commitments such as a mortgage or dependent children and averse to long-term unsecured debt commitments.
Exact figures on how big the UK market currently is are hard to come by.
Lamidey’s own estimate is that there are up to six million UK adults who could be in the market for a payday loan. This is based on there being around 42 million economically active UK adults, of whom around only half use credit products (21 million) and of this number, only one in four are likely to prompt for a payday loan.
The market has grown and continues to grow however, driven mainly by the use of the internet.
“Before 1 January 2005 you could not contract online,” says Lamidey. “A significant part of payday lending is done online, so a lot of the growth is just a market developing, but it is growing, there is no doubt about that.”
In fact, the growth has been so pronounced that last year both the Office of Fair Trading and Consumer Focus saw fit to issue recommendations on how the industry should operate to remain in the best interests of consumers.
In response the CFA set up a working group comprised of these two bodies, plus consumer groups including Citizens Advice and Credit Action and two payday loan firms.
This working group was intended to inform the CFA about guidelines which, when drawn up, were dubbed the lending code for small cash advances, launched in Parliament in July.
Despite being surrounded by panellists that were supportive of the code, Lamidey was left isolated at the launch as a group of MPs, among them Stella Creasy, took turns to chastise him with arguments that the Code did not go far enough to address concerns that payday loans were potentially harmful for consumers.
The core argument of the opposition to the Code was that it did not go far enough. Its detractors lamented the lack of debate around things such as caps on interest rates and the charges incurred by indebted customers rolling the loans over.
“Nobody is going to get everything they want,” argues Lamidey. “We are now working on a price comparison website with the Money Advice Service, and The Department of Business, Innovation and Skills (BIS) want additional material put into it. It is no longer just looking at the two reports from last year.”
The CFA is also working towards a system whereby, once the code is updated, payday lenders will be able to sign up to it even if they are not members of the CFA.
Despite his assurances, there are still doubts around how well the payday loan industry is regulated.
Lamidey has no such concerns. Indeed, he argues that the UK has the best financial services regulation in the world.
And, in response to critics who suggest that the US takes a better regulatory approach to payday lending, he argues that in North America there are 63 different consumer credit directives, as opposed to one in the UK.
He says: “For ten years there has been huge scrutiny on the Consumer Credit Act. Are you going to start again? Our view is that we should not throw away what we have already got.”
The government was due to announce the expected changes to the consumer regulation regime this summer, but it appears that this announcement will now come in the autumn.
“We are not that fussed about who regulates us,” he adds. “But we should definitely keep the same mechanism.”
So, has Lamidey himself ever taken out a payday loan?
“No,” he says, before adding hastily: “But I am not in the right demographic.”
There is a sense he has prepared his subsequent explanation.
He continues: “If I did have the need then I would certainly consider it. The alternative I would have would be using a credit card or an overdraft.”
This is the core defence put up by payday lenders: that for short-term borrowing their product offers a cheaper interest alternative to more ‘standard’ forms of borrowing such as credit cards or overdrafts, provided repayment terms are adhered to.
Lamidey also argues that interest charges are frozen and repayment plans negotiated where consumers take out loans and subsequently fall into difficulty.
He also points out that so few complaints have been made to the Financial Ombudsmen Service (FOS) about payday loans that the industry has not yet acquired its own complaints ‘section’ within the body.
Many will greet this assertion with caution however, because it is clear that payday borrowing is currently done on a far smaller scale than the mainstream financial products that generate the most complaints.
At the launch of the Code Stephen Lloyd, Liberal Democrat MP for Eastbourne, warned that the government would become ‘agitated’ should the CFA’s proposals not prove an efficient regulatory tool.
Lamidey, for his part, is being pro-active in taking the Code forward, and if the price comparison website comes to fruition, it may prove a welcome move towards the transparency that will make this industry more mainstream and acceptable.
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interesting comments once again from the CFA. 65 payday loans in 2 years from 13 different payday lenders is my story, never taken them out as an alternative to bank charges, nor have I had a bank loan and i’ve never had a credit card. The advertising tactics of this short term lending industry are shocking at the best of times, my opinions justified by Cash Converters removal of recent payday loan articles which suggest payday loans are good for, lets see, when a family member is dying! Should note that the same company also claimed that NO CREDIT CHECKS are required for a payday loan. This is the same company who are one of the CFA members, who also didnt show the Lending Code logo – although over 60% of the CFA member websites do not show this logo. So much about this industry is inherently wrong. Would suggest people visit my site Say No To Payday Loans for much more information.
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