We must crack down on payday loans – for the sake of our health | Mary O’Hara

VSreducing costly and predatory lending is not only desirable, it is imperative. It’s hard enough to be poor and pay a poverty premium on utilities and other essentials, not to mention not being able to get cheaper credit that the better-off take for granted. As the Institute for Fiscal Studies pointed out in January, debt problems tend to be more persistent among poorer peoplewith 40% of the poorest fifth of households having arrears or spending more than a third of their income to repay their debts between 2010 and 2012 were still doing so two years later.

Although there have been improvements in regulation, such as capping the overall cost of payday loans, high-cost credit remains a serious problem. It’s not uncommon in the US for someone caught in the debt cycle to roll over what are supposed to be short-term payday loans for months at a time, shelling out around a third of their salary in repayments. monthly and paying much more. in costs and fees than the original loan amount.

The combination of problematic debt and government austerity policies means it’s no surprise child poverty is at its highest level since 2010 and 30% of UK children are now classed as poor (including two-thirds come from active families). A study by the Financial Conduct Authority found that 4.1 million people in the UK are already in serious financial trouble, behind on bills and credit card payments. Whether it’s debt counseling organizations who see the fallout on their front door day after day demanding reform, or politicians like Stella Creasy, who campaigned for years against the high cost payday loans and now accepting high cost credit cards, the devastating impact of problematic debt is gaining ground in political and public awareness.

Actor Michael Sheen on ITV’s This Morning launches the End High Cost Credit Alliance. Photography: Ken McKay/ITV/REX/Shutterstock

Last month, actor and activist Michael Sheen said he was stepping back from acting to focus on tackling high-cost credit, and officially launched the End high cost credit covenanta coalition of charities and responsible credit organizations he founded in 2017 to campaign for fairer sources of borrowing.

The need for cheaper credit for all is not just about fairness and convenience, it could also be good for people’s health. A new report from health education charity the Royal Society for Public Health found, for example, that payday loans had the most negative impact on their mental health.

High cost and predatory lending is intimately linked to increased poverty and inequality. Evidence indicates that it can be a financial, health and psychological burden. In the United States, where the Pew Charitable Trusts estimates that payday loans are used by 12 million Americans a year (many more resorting to other forms of high-cost credit), the impact on the financial and general well-being of vulnerable families has been well documented. Recent research in the United States, for example, found that people who use high-interest short-term credit are 38% more likely to report poor health.

Some states are already fighting back: payday loans are banned in Washington DC and 15 states, while states like Colorado have tightened their regulations. Joe Valenti, director of consumer credit at the Center for American Progress, points to the fact that voters tend to be in favor of reform and have helped advance regulation within individual states. Nationally, he argues that when the Federal Consumer Financial Protection Bureau (CFPB), set up in the wake of the financial crisis, issued what is called a “final rule” governing payday loans and similar products in October 2017, introducing protections such as requiring lenders to verify borrowers’ ability to pay, this was a significant step forward.

But all this could be reversed if a bill passing through Congress is passed. This would stall progress and reverse state efforts to tightly regulate payday loan fees.

And ultimately, if we’re serious about tackling debt problems, we need to make sure people don’t have to use payday loans or exorbitant credit cards just to get by. With inequality soaring and social safety nets shrinking in the US and UK, this is not likely to happen anytime soon.

Mary O’Hara is the author of Austerity Bites: A Journey to the Sharp End of Cuts in the UK

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