“Overspent over Christmas?” asks a poster from the Money Advice Service. Unfortunately for some, payday websites are asking the same. In 2012, a weight of political opinion gathered against high-interest loans to the financially vulnerable, with Labour peer Lord Mitchell describing “legalised loan-sharking” as “out of control”. Plans announced in December will empower the new Financial Conduct Authority to cap the cost of credit from 2014; meanwhile, the Office of Fair Trading – the current regulator – is due to publish its compliance review of the sector. Despite this, many individuals entered the lean month of January with no safe way out of their financial problems.

Mayday lenders?

Commonly marketed as a quick solution to unplanned expenses, most payday loans are agreed for a one or two-month period; however, their high rates mean that rolling over or adding to a loan can send the final bill spiraling  The Consumer Finance Association was among four industry bodies to agree to a new consumer charter in May 2012, guaranteeing clearer loan terms and mandatory information for borrowers in trouble. Russell Hamblin-Boone, the association’s chief executive, has stressed that responsible lenders do not purport to fix long-term problems, pointing to CFA evidence that 85% of recipients can repay the money owed without difficulty, while less than 19% of loans are used for non-vital expenses, such as gifts or holidays.   There are some payday loan brokers on the market like cashcownow that are openly transparent about their lending practices and welcome the new incoming regulatory rules.

The position is less clear for potential customers. On the high street, food, cosmetics and other products are often advertised as “everyday treats” – life’s little luxuries, but essentials as well – in a way that makes us feel entitled to them. Arguments about willpower and education in personal finance will ring hollow to lower-income parents; most would struggle to put Christmas and birthday presents in the ‘inessential’ category. Problems run far deeper in some cases, as shown by the CFA’s statement that payday loans are not a defence strategy against homelessness. For some marginalised borrowers, the services offer momentary relief from stress – a cash injection that restores their confidence and buying power. As one customer puts it: “You feel like a millionaire for about ten minutes.”
A bigger picture – beyond regulation

Criticism of the banking sector since the government’s bailout measures has focused largely on a perceived reluctance to extend large-scale commercial credit. However, borrowing at household level has also remained depressed, particularly for people with scarred credit histories. Payday lending is defended as the only option for those trapped between exclusion from big-name banks and the outright danger of loan sharks, although other providers, such as micro-financiers and credit unions, may be available.

Movements such as the #Sharkstoppers campaign hope that social acceptability could prove a sharper than regulation, or may help to drive it. However, in some areas the profile of short-term loan providers is rising. Both Newcastle United and Blackpool football clubs draw support from some areas of economic hardship. Both have concluded sponsorship deals with a payday lender, despite disapproval from supporters’ groups – further proof of how loudly money talks.