Would Robin Hood be a payday lender? Ofer Valencio Akerman, a corporate turnaround specialist, pushes the case for the defence to the limit. And then, just to be on the safe side, a little further.
For many people, the name Robin Hood evokes nostalgic memories of a hero who steals from the rich to share with the poor. It’s an ideal that tugs at my heartstrings: the concept that we could share wealth hoarded by certain bad guys with the people who really need it.
When I heard Martin Wheatley, the CEO of the Financial Conduct Authority, discuss the necessity of protecting the poor from payday lenders, I couldn’t stop thinking about that fairy tale hero. It was as if I’d become a proud, innocent child again, envisioning Martin and I fighting together to protect the kingdom’s economy from the uber-rich lenders. In my imagination, we closed lending shops, put heavy seals on the doors and enacted carved-in-stone laws to keep the companies out of business.
In that alternate universe, Martin and I were the Robin Hoods of the UK economy. It felt wonderful to protect the country from lenders preying on citizens’ vulnerabilities by charging an APR of more than 1,000 percent.
Of course, the fantasy didn’t last long. I snapped out of it thanks to a strong punch from my mate Germy, who instantly reminded me that we were actually sitting at credit conference and not in a land of sword-wielding bad guys and white-knight heroes.
Here’s where the story gets tricky: Germy himself is a payday lender. He’d paid for my conference ticket because he wanted my professional opinion on how the new FCA regulations would affect his business and whether he’d be able to stay solvent at all. This 60-year-old man is among the most hardworking I know, and though I felt the divide between us in that moment, I also remembered how he’d achieved his success.
Germy owns a payday and short-term loan boutique in London. He comes from a middle-class background and started his professional life with 20 long years of factory work. His current business operates on a model of responsible lending to help people work through a temporary financial gap. Unlike banks they don’t ask for securities or possess homes as a guarantee; they simply lend money to people who are facing a temporary financial shortfall and get rejected by the banks.
I know what you’re thinking: That sounds an awful lot like something Robin Hood would do. Aren’t payday lenders supposed to be the bad guys?
If Germy’s business is any indication, one should honestly act and point his accusing finger toward the poor financial education system and Banks that makes funds literally inaccessible in time of need. Robin Hood himself would probably realize that, but he’d also understand that these institutions in their current states are often too big to be blamed.
As I looked at Germy and felt his concern about whether his business would even exist in a year, I realized that Wheatley and the FCA were no longer my Robin Hoods. In fact, I began to feel terrified about the FCA’s choice to spend millions of pounds on a doomed-to-fail approach rather than dealing with the root of the problem: poor education surrounding financial responsibility.
Some of the FCA’s tactics reminds me the cigarette-box approach. Every smoker in the world knows that smoking kills because it’s written right on the box. Does that actually deter anyone from picking up a pack? I think the answer is probably no.
Similarly, stamping a warning message on payday lenders’ websites will do little to keep people in need from using their services. If the choice is between paying an extra £50 on a £200 loan to put food on the table until the end of the month or saving that £50 and going hungry, most people will choose to pay up. In an honest system, the main-stream institutions would be able to help. We know how that story goes in reality.
UK citizens take out more than £2 billion in short-term loans every year because they simply can’t afford their cost of living. They’re exhausting credit instruments to support the basics and pay their bills. That’s moderately sustainable as long as funding is accessible and people can afford to pay the interest rates. What happens, however, if the broader financial system gets even more difficult? The answer is simple: Banks tighten their lending policies, money gets more expensive, and the people who really need assistance are left out in the cold.
Tagging short-term lenders as the bad-guys and making unsecure loans regulated expensive and inaccessible won’t solve this problem. Robin Hood would effectively get stuck in traffic.
Responsibility, affordability and regulation are important parts of any financial system that hopes to ensure sustainability and fair-market conduct, However, Robin’s old model is simply no longer sufficient. I can only hope that someone will eventually have the courage to drive straight into the core of the problem and forge a path to true recovery rather than relying on quick victories with smaller players.
Ofer Valencio Akerman is a corporate turnaround expert with more than 20 years of experience in cyber-crime investigations, financial risk modeling, online marketing and global business development. He’s currently the chairman of Berlin’s Hiogi Group.