Monday, 29 July 2013

Less From the Pulpit, More From the Pew

The Church of England's terrible muddle over pay day lending shows that it's out of touch with the details in the payday lending market. Just as we've seen in other markets, pontificating from the top down is no substitute from working on problems from the customer's standpoint. So, a little less output from the pulpit's point of view and more from the pew's would be no bad thing.

As mentioned previously, the challenge for borrowers who need or want to borrow short term is finding a combination of speed, convenience and affordability. In March, the OFT's own research revealed that 90% of online customers found the it "quick and convenient" to get a short term loan and 81% said such loans make it easier to manage when money is tight. Customers expressed their satisfaction in terms of decision speed (36%), convenience (35%) and customer service 27%). The majority of payday customers (72%) only borrow for a month. So, the critical issues seem to be how to ensure the other 28% are better able to understand the risks of rolling over short term loans, and how to avoid it; as well as cutting the overall costs for those who use short term financing. 

The root causes of these problems do not lie in the cost of payday loans. Short term borrowers are often working amongst the contractual fine print of late fees, cancellation notices and so on. Allocating money to debts 'just in time' is a high risk occupation. One slip can make life hell in a non-financial sense - maybe the kids won't have school shoes, there will be no heating or the landlord will finally lose patience. Credit cards, debit cards and cheques are useless from this sort of timing perspective, because they don't tell you how much you have left to spend at the time you use them. There can also be an accounting lag between when you pay and when the transaction lands on your account, so you can find yourself 'surprised' by a payment you thought had been accounted for days or even weeks previously. And the amount of interest and other charges is only known when it appears on a monthly statement. We hear a lot of noise about APRs, but not so much about the timing problems or the scale of fees payable when you get on the wrong side of bank products - these are far more relevant to short term borrowers, and why many remain 'unbanked' by choice.

In these circumstances, rather than playing money-lender, it would be better if the Church could foster the development of an application or other means of presenting to a borrower the most affordable short term finance option, based on the analysis of the borrower's own transaction data from existing creditors (including cancellation rights and late fees), and the costs of different finance products (including charges for missing a payment). This really only requires a commitment on the part of all the typical creditors and financial services providers to make their product and pricing data available in machine-readable format, which the government has been pushing them to do as part of the voluntary 'Midata' programme. That data can then be analysed and the results made available either online or physically, via mobile phone, computer or print-out. 

No doubt the Devil is in the detail underlying such a service. But surely the Church isn't bothered by that?

Friday, 19 July 2013

The Reform Of Our Institutions Won't Come From The Top

It's been a difficult month to finish this post. Every day another dollop of decrepitude is revealed amongst our rotting institutions. Systemic slaughter in the NHS. The convenient collapse of a major police corruption trial through 'missing' evidence. Police concealing the misuse of private investigators and spying on victim's families for the chance to undermine public sympathy. Sunlight on vast pay-offs to the departing management of the Savile-stricken BBC. The lengths to which the unions will go to control the Labour Party and use it to enshrine their own power. The Church of England deciding to turn money lender. And, surprise, surprise yet another massive bank fine...because, yes, any bank that relies on a public guarantee of its liabilities and massive tax subsidies through ISAs and so on should regard itself as a public institution.

It's a core theme of this blog to contrast the decline of faith in institutions that have evolved to suit themselves at our expense, with the rise of facilitators who exist to help us solve problems more effectively for ourselves.

Our institutions won't align with the interests of the those who rely on their services while they suppress evidence of their ineptitude, or while trustees and management quibble over their extent of their responsibilities, or while politicians spend their time blaming each other for the mess. These are sure signs that our institutions are stuck in denial and that the MPs and Ministers whose job it is to supervise them are stuck in their own cycle of blame.

Until our institutions understand and accept the need to align with the consumers of their services, rather than the desires of their pompous managers, they will not evolve into efficient, facilitative organisations worthy of our trust and respect.

But I don't believe that our so-called political leaders or the managers of our institutions have either the self-awareness or the skills needed to achieve this evolution. They are merely products of 'the system' that so desparately needs to evolve.

Sustainable reform will only come come from the grassroots rather than the top down. It will only come when each of us takes personal responsibility for turning things around, whether by exposing institutional failings or genuinely working to solve other people's problems rather than merely our own. 

In other words, both the problem and the solution are in our hands.

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