Taming the Fringe: The Regulation and Development of the British Payday Lending and Pawnbroking Markets since 1870 (Palgrave Studies in the History of Finance)

Taming the Fringe analyses the regulation and evolution of two credit products that were, and remain, vital to the working poor. Policymakers have struggled with pawnbroking and moneylending because they raise broader issues pertaining to poverty, capitalism and financial regulation. The values of easily accessible credit and financial independence compete with society's desire to protect people from predatory loans. Policymakers have pondered whether regulation can lower costs without reducing access for those most in need of small cash loans. Can government policy protect borrowers while also providing sufficient profit for lenders? The many attempts at doing so reveal the difficulty of safeguarding the needs of people who have experienced financial trouble before seeking a loan. Taming the Fringe is the first extended study of the payday lending and pawnbroking markets in Britain, and the only one to examine over 160 years of financial results and market data. This work explains why small-value lenders have generated such passionate debate, even being described as the devil incarnate. It adds to our knowledge of fringe banking and the evolving role of financial regulation to protect the working poor. Since 1870, pawnbrokers and moneylenders have actively shaped regulation - a viewpoint the existing literature does not address adequately. This work contributes to the scholarly and policy dialogue on financial inclusion, working-class poverty and the development and legitimacy of fringe lending. This book analyses the motivation, content and outcome of critical regulatory episodes that have shaped fringe banking. While historians have written volumes about consumer credit, few have analysed why elite policymakers have sought to protect the working poor from some credit markets. This work demonstrates that, across time, conflicting views on poverty and liberal economic theory have, to varying degrees, influenced how the government has protected the working poor, and will be of interest to financial and economic historians. Craig McMahon is an Assistant Professor of Economic History at Villanova University, USA and is an affiliate of the Centre for Financial History, Darwin College, UK. He received his PhD from the University of Cambridge, UK. Craig has over 20 years of experience in the capital markets, international consultancy and non-profit management. He teaches courses on the development and regulation of banking markets, American economic development, global political economy and globalization. Contents Abbreviations List of Figures List of Tables 1 Introduction: Fair Price and Sufficient Profit Origins and Themes Bibliography 2 Victorian Pawnbrokers: Cancerous Worms of Ruin or the Poor Man’s Banker? A Regulated Trade Under Distress Conflict, Compromise and the Case for Reform Pushing Reform Through Parliament Price Controls Forfeiture The Final Result: The Pawnbrokers Act 1872 Conclusion References 3 Moneylenders: Deeply Rooted Evil or Providers of Quick Cash? Judiciary Controversy The Judiciary and Market Intervention Victorian Regulators Have Their Say, 1897–1900 High Interest Rates Price Controls Price Controls Light Fraudulent Advertisement and Disclosure Terms Trade Names The MLA 1900 Concerning Fraud and Transparency Aftermath Reining in Small-Value Loans 1925–27 High Interest Rates, Price Controls and Judicial Review Advertising Terms and Conditions Registration and Licensing Conclusion Bibliography 4 Legitimate Bankers: Pawnbrokers and Moneylenders Join the Premier League Market and Political Developments Market Background Political Background The Crowther Committee 1968–1971 The Borrower Price Controls, the Harsh and Unconscionable Test and the Guidance Rate Disclosure Terms Enforcement and Licensing Final Remarks on the Crowther Committee (1968–1971) The Consumer Credit Act 1974 Price Controls Terms of Disclosure Enforcement and Licensing Conclusion Bibliography 5 Small-Loan Providers: Sent Back to the Fringe Political and Market Developments Political Developments Economic Conditions and Developments in the Small-Loan Market, 1970s–2006 Financial Inclusion and the Consumer Credit Act 2006 Price Controls APR Disclosure From Extortionate Lending to Unfair Relationships Licensing and Enforcement Conclusion to Financial Inclusion and the Consumer Credit Act 2006 The Global Financial Crisis and Market Expansion Price Controls Disclosure Terms Conclusion Bibliography 6 Fintech to the Rescue or Predators in Disguise? Market and Policy Developments Financial Inclusion Policy Developments Banks, Credit Unions and Community Development Financial Institutions Fintech and Innovation Conclusion Bibliography 7 Conclusion: Perceptions Matter Bibliography Principal Persons Index