‘Wales, the land that banks forgot’

Dr. Nicholas RyderProfessor in Financial Crime

Department of LawUWE

Nicholas.ryder@uwe.ac.ukhttp://twitter.com/#!/DrNicRyder

Introduction

• The evolution of the consumer credit market• Convenient and affordable credit• Some statistical data• Irresponsible lending• Predatory lending• Findings and Conclusions• Bibliography

Evolution of the consumer credit market

• Era of legislative deregulation (1980s and 1990s)

• Consumer credit market grew at an unparalleled velocity

• UK has the largest market share of the EU consumer credit market (10%)

• Rapid expansion of sub-prime lenders• There is a ‘dark side’ to convenient credit

Convenient and Affordable Credit

• Convenient Credit– ‘credit that is granted

by the creditor with little or no reference to the credit worthiness of the debtor’ (Ryder, 2012)

• Affordable Credit– access to loans that

are simple and transparent;

– sympathetic lenders;– simple loan application

procedures; – small loans over a

short period of time and

– affordable repayments

Convenient Credit

• Access to the credit market has dramatically altered

• Convenient access?– Internet– Interactive television

sets– Financial institutions– Pay day lenders

• Individuals and communities:– higher credit charges,– limited access to

financial products and services,

– lack of security, – child poverty, and – unemployment

Some statistical data

• People in the UK owe £1.463tn,

• The average debt per household –was £55,384,

• The average debt per adult is £28,968 ,Banks and building societies wrote off £3.31 bn of loans,

• Interest repayments on personal debt would be £55.6bn,

• That’s an average of £152m per day,

• average consumer credit borrowing was £3,342 per UK adult,

• Credit card debt in was £61.0bn.

Some statistical data (Wales)

Consumer Focus Wales

• 47% of adults in Wales have at least one credit agreement

• 10% have four or more credit commitments

• The average outstanding balance for those with debt was £3,390

Consumer Focus Wales

• 21% use credit to pay for everyday expenses

• 13% use credit to pay household bills

• 35% sometimes struggle pay bills and credit commitments;

• 17% face a constant struggle or facing real financial problems

Some statistical data (Wales)

Consumer Focus Wales

• Younger people and some of the most vulnerable

• 19 % with active credit commitments have fallen behind with payments

Consumer Focus Wales

• 18 % of adults have fallen behind with payments for bills/and/or credit repayments in the last 12 months;

• 5% have fallen behind with both

Irresponsible Lending

• “a business practice that it would consider deceitful, oppressive, unfair and improper for the purposes of revoking a consumer credit licence” (Ryder, 2012)

Irresponsible Lending

• Increasing credit card and overdraft limits without the customers consent

• not requesting proof of income when determining the level of credit to be offered

• providing loans and credit cards to the unemployed

• speed and simplicity of credit applications

• High credit limits• Incentives to use a

particular brand of credit card

Predatory Lending

• “engaging in deception or fraud, manipulating the borrower through aggressive sales tactics, or taking unfair advantage of a borrower’s lack of understanding about loan terms (US Department of Treasury, 2000).

Predatory Lending

• Intentionally targeting vulnerable individuals

• extract excessive fees and costs from the borrower

• aggressive marketing practices,

• High pressure sales tactics,

• Harsh loan terms, such as prepayment penalties, and

• This inhibit a borrower’s ability to go elsewhere for credit.

Findings and Recommendations

Bank Closures

• Corporate restructuring by UK banks since the 1990s

• Welsh MPs debate House of Commons 2012

• "The government does not intervene as a matter of principle” (Chloe Smith, HM Treasury Minister)

Bank Closures

• Campaign for Community Banking– 800 communities have lost

all local banking presence– 1500 communities are at risk– There has been a 46%

reduction in the number branch network (2014)

• Closures are inevitable with electronic/mobile banking

Findings and Recommendations

Credit Unions

• Inadequacy of Westminster model since 1998

• Overreliance on state funding

• Political and public misconception

• Devolution and the development of a ‘hybrid model’

Credit Unions

• Record growth of credit union members since 1998

• Similar models adopted in Wales and Scotland

• Joined up approach• Redress imbalance

caused by political and public misconception

Findings and Recommendations

Irresponsible Lending

• Inadequate regulation by the Office of Fair Trading

• Weak financial penalties imposed by the FSA as part of its credible deterrence policy

• Unethical banking/lending practices?

• Impact of FCA from April 2014

Predatory Lending

• Effective regulation in the United States

• Breaches of criminal law?• Fraud?

Conclusions

• Continuing record levels of consumer debt,

• Evidence of irresponsible lending practices,

• the imposition of extortionate interest rates,

• Branch closures as part of corporate restructuring.

Conclusions

• Development of community banks

• Development of credit unions

• Financial literacy – unfulfilled promises?

Bibliography

• Campaign for Community Banking ‘Branch Network Reduction: 2014 Report’ (2014)

• Consumer Focus Wales ‘Consumer Finances in Wales: Debt and credit use’ (August 2010)

• The Money Charity ‘The money statistics January 2015’ (February 20105)

• Ryder, N. ‘Predatory lending and white collar crime: a critical reflection’ (2014) International Company and Commercial Law Review, 25(9), 287-293, with Broomfield, K.

• Ryder, N. ‘The credit crunch – the right time for credit unions to strike?’, (2009) Legal Studies 29(1) 75-98.

• Ryder, N. ‘The funding of credit unions – where has all the money gone?’, (2008) Journal of Social Welfare Family 30(3), 243-252, with Chambers, C.

Bibliography

• Ryder, N. ‘Credit union legislative frameworks in the United States of America and the United Kingdom – a flexible friend or a step towards the dark side?’, (2008) The Journal of Consumer Policy, 31(2), 147-166.

• Ryder, N. The Financial Crisis and White Collar Crime: The Perfect Storm? (Edward Elgar, 2014)

• Ryder, N. Commercial Law: Principles and Policy (Cambridge University Press, 2012, 656 pp) with Griffiths, M and Singh, L.