Payday lending – usurious practices against the poor in the United Kingdom
Payday lending is a usurious lending practice in the UK where lenders profit from the absence of a bank monopoly in consumer credit which would restrict lending to supervised banks like it is the case in Germany and France. It also profits from the lack of access of poor people to bank accounts and overdraft facilities of banks to cover short term liquidity problems. Until the EU opened the doors for usurious interest rates also in Germany with their invention of a new form of usurious credit called „overriding“ which occurs when overdraft has been „overridden““ (formerly known as default) this fairly cheap and flexible low cost facility helped the poor to bridge the gap between exhausted ressources before payday.
The UK banking industry takes a double advantage from this kind of ghetto economy for the poor: it: can exclude these people with little potential for cross selling of additional services from their accounts without risking an outdry of the public about cutting the lifeline of such households. They can charge usuriously high interest rates up to 800% p.a. (the UK is one of the last states without usury limits) without being blamed for it. They can channel these loans through seemingly independent lenders without suffering from the bad image for example from Prudential or Wonga. They are disguised as refinancing agency and shareholders and can plead not guilty. shareholders are not responsible and refinancing agencies as any investor can close their eyes with regard to the use of their money. this now also occured to the Church of England who thus can be called a usurious lender very much unlike the Christian tradition of fighting against usury. The letter we got tells us:
The Archibishop, usury and Wonga
The bureau of investigative journalism reported in June 2013 that „the Archbishop of Canterbury has called for the Government to ban ‘legal usury on our high streets’ in a strongly worded attack on the payday loan industry. Speaking in a parliamentary debate on the high-cost loan companies, some charging customers more than 4,000%, the Archbishop said the Government should introduce a cap on the rates the firms can charge. He also dismissed Government claims that a cap would restrict competition and force people to turn to loan sharks.“
Our ECRC member the Centre for Rsponsible Credit in London added: „It was interesting to see the Archbishop of Canterbury criticised recently in the media because of the Church of England’s investment in the payday lender Wonga. This investment was, as many are, not a direct one. However, one Church fund invested in another fund and this eventually found its way to Wonga. Although the Church did not know what it was investing in, Wonga apparently did know where their money was coming from. So, when the Archbishop chose to criticise the payday lenders, it was in fact Wonga which told the media ‚ah, but the Church has no right to criticise us, in fact they invest in us‘!
The Archbishop, suitably embarrassed by the incident, has beaten a retreat of sorts. In fact, the Archbishop – now repentant and seeking to amend the Church’s investment policies – should challenge the banks and pension funds across the country to follow his lead.. One will see whether or not this comes about.
The Church of England, Church Action on Poverty, Citizens Advice, StepChange, Citizens UK, Which? and Paul Blomfield MP of the Business Select Committee will draw up a ‚People’s Charter‘ setting out key demands of Government and the regulator: „That the Financial Conduct Authority investigate the links between banks and other financial institutions and the expansion of payday and high cost credit and publish an assessment of how investments could be put to better use to meet the needs of people on low incomes for affordable and responsible products.“
„Father, forgive them, for they do not know what they are doing.“
Undermining democracy by usury
The pattern of this industry shows all the evils of capitalism. As income is no longer linked to the amount of labour but the amount of money which one can invest the iron law of capitalism that richest become richer, while labour has still to to provide this wealth in the real economy applies. But where low income people live with ongoing debt the availability of their income, welfare etc. at a time where the need it (this is not the „pay day“), in short hteir „liquidity“ has to be secured by credit. They rely on credit. That is why all religions told their followers to give and to lend to the poor (at no interest, if they are in need). Capitalism has found a solution: banks. They combine the interest of the saver with the interest of the borrower so that the saver can enjoy his wealth later even if at that time he is no longer able to work for it. (i.e. retirement) We call this consumer credit and pension schemes. There is an egoistic temptation. Since 5000 years ethics and religions denounced the misuse of this power. although all savers together loose their fortune if they do not find a borrower individually they have time, can postpone , reallocate their investments while the borrowers need immediate help. The law has switched from a borrower friendly system until the 18th century to a investor friendly system.
Now an „as if market“ governs usury law without regard to the true effects. While the whole lending industry voluntarily discriminates against the poor by excluding them from such loans which are extended under competitive conditions (some call this „responsible lending“) they form a cartel under which 2500% p.a. becomes possilbe. In fact they make their money with the state since the state offers his enforcement mechanisms and the legitimating power of the law and the courts to the worst offenders against what in all its forms has been called „justice“. But what is even more striking is the corruption which is aligned with this procedures. Such usurious lenders bribe the political parties and influence the court system by taking a small percentage of their monopolistic profits to keep things as they are. This at least is shown in the articles cited below. The same has been experienced in Germany where especially usurious insurance systems have largely destructed the politcal world where individuals as high ranking as state secretaries got fancy remunerations for nothing. (famous the so called Göttinger Gruppe which finally went bankcrupt)
iff appeared on BBC as early as 1986 comparing the UK system with the well-functioning continental system of anti-usury legislation. Since then nothing has changed. On the contrary. The English system constantly threatens the achievements on the continent via Brussels where in the Financial SErvices Action Plans of the EU Commission even the abolition of all usury ceilings in Europe were put onto the agenda.
If we want less corruption, more justice, markets which work and show what they can achieve and sytems which do not discriminate our freedom in the eyes of the coming generations we have to ally against usury world wide.