Once again, the poorest people have been shafted in the latest coronavirus plan

A pair of hands counting change amid coronavirus
Support us and go ad-free

The official regulator of finance in the UK has announced new rules for personal debt during the coronavirus (Covid-19) pandemic. But far from helping those who need it, the guidance has effectively screwed over the poorest people in the UK.

Another day, another coronavirus response

On 2 April, the Financial Conduct Authority (FCA) issued a statement. It’s the regulator of banks, credit card companies, and other financial institutions in the UK. The FCA has made some changes to the rules surrounding personal loans, credit cards, and banks during the pandemic. As financial expert Martin Lewis tweeted:

In short, the FCA has said that financial institutions should offer vulnerable people the chance to:

  • Have payment holidays on personal loans and credit cards, for up to three months.
  • Not have their credit rating hit by this.

Also, banks now have to offer 0% APR (interest) on up to £500 of existing customers’ overdrafts; providing these people already have an overdraft.

But while this seems like good news, as Lewis also tweeted:

The Canary spoke to the FCA. It confirmed that Lewis’s analysis is correct. It’s odd that payday loans are not included in the FCA’s new rules. But the devil of this is in the detail.

A toxic sector

Payday loans are by definition not personal loans. This is because the terms of the borrowing are different. Payday loans are classed as “high-cost short-term credit” (HCSTC). Their criteria is different to a personal loan, not least because the APR is equal to or over 100%.

Payday loans are also one of the most controversial aspects of personal finance. And it’s often poor people who suffer the most because of them.

As the FCA itself reported, HCSTC is big business in the UK. It said that:

  • “Over 5.4 million loans were made in the year to 30 June 2018”.
  • “Lending volumes have risen since 2016, but remain well below levels seen in 2013”.
  • “The top 10 lenders account for around 85% of the total number of new loans”.
  • “On average borrowers are due to repay 1.65 times the amount they borrow”.
Hitting the poorest, the hardest

Also, it seemed to be poorer and younger people who took out payday loans. For example, in the year to 30 June 2018:

  • 25-34-year-old’s made up 37% of payday loan borrowers.
  • 37% of people who had payday loans were “tenants” (renters). This includes people living in council houses.
  • 26% live with their parents.
  • 61% had a “lower level of confidence managing their money”. This compared to 24% of the rest of the population.
  • The North West has the highest number of people taking out payday loans. 125 in every 1,000 people had one.

This paints a picture of payday loans being used more by poorer people. For example, in the North West in 2019, child poverty was rising. Over half a million children were in poverty, with Blackburn with Darwen and Manchester being in the UK top ten for this measure. Also, more private renters aged under 40 are in poverty than the numbers for social housing and home ownership combined.

Exacerbating chaos

But perhaps the biggest issue with payday loans is people’s existing financial circumstance. The FCA says that:

67% of payday loan borrowers… are over-indebted compared with 15% of UK adults.

In short, this means that around two-thirds of people with payday loans are unable to keep up with all their credit repayments. Essentially, they’ve got more money going out than they have coming in. It’s this which sticks in the throat with the FCA’s new rules.

Nearly one million people have now applied for Universal Credit in the space of two weeks of lockdown. Many of these may be self-employed people whose work has dried up. And many in this group of people were already financially unstable. So, with the FCA so far not taking payday lenders in hand, these people could face even more financial distress if they already have payday loans.

As The Canary previously reported, the Salvation Army has warned that Universal Credit could cause a “coronavirus debt crisis”. Factor in payday loans, and it could be a catastrophe. The FCA must act now to ensure people with payday loans aren’t pushed further into crisis.

Featured image via Frantisek_Krejci – pixabay

Support us and go ad-free

We need your help to keep speaking the truth

Every story that you have come to us with; each injustice you have asked us to investigate; every campaign we have fought; each of your unheard voices we amplified; we do this for you. We are making a difference on your behalf.

Our fight is your fight. You’ve supported our collective struggle every time you gave us a like; and every time you shared our work across social media. Now we need you to support us with a monthly donation.

We have published nearly 2,000 articles and over 50 films in 2021. And we want to do this and more in 2022 but we don’t have enough money to go on at this pace. So, if you value our work and want us to continue then please join us and be part of The Canary family.

In return, you get:

* Advert free reading experience
* Quarterly group video call with the Editor-in-Chief
* Behind the scenes monthly e-newsletter
* 20% discount in our shop

Almost all of our spending goes to the people who make The Canary’s content. So your contribution directly supports our writers and enables us to continue to do what we do: speaking truth, powered by you. We have weathered many attempts to shut us down and silence our vital opposition to an increasingly fascist government and right-wing mainstream media.

With your help we can continue:

* Holding political and state power to account
* Advocating for the people the system marginalises
* Being a media outlet that upholds the highest standards
* Campaigning on the issues others won’t
* Putting your lives central to everything we do

We are a drop of truth in an ocean of deceit. But we can’t do this without your support. So please, can you help us continue the fight?

The Canary Support us