The Regulation and Development of the British Moneylending and Pawnbroking Markets, 1870-2016 Craig M. McMahon University of Cambridge St. Edmund’s College February 2018 This dissertation is submitted for the degree of Doctor of Philosophy. 1 Declaration This dissertation is the result of my own work and includes nothing which is the outcome of work done in collaboration except as declared in the Preface and specified in the text. It is not substantially the same as any that I have submitted, or, is being concurrently submitted for a degree or diploma or other qualification at the University of Cambridge or any other University or similar institution except as declared in the Preface and specified in the text. I further state that no substantial part of my dissertation has already been submitted, or, is being concurrently submitted for any such degree, diploma or other qualification at the University of Cambridge or any other University or similar institution except as declared in the Preface and specified in the text. It does not exceed the prescribed word limit for the relevant Degree Committee. 2 Abstract This thesis examines the regulation and development of the moneylending and pawnbroking markets in Britain since the 1870s. The six regulatory episodes examined illustrate how the role of state intervention in these markets has been debated, and how it has evolved. The thesis asks: what were the motivations for reform, which market features were regulators most concerned with, and what were their proposed solutions? It demonstrates how majority and minority viewpoints have informed regulation and documents the often-conflicting expectations of how regulation was meant to influence lending decisions, borrower outcomes and poverty. By identifying the primary motivating factors behind regulation, the study answers why and how some policymakers sought to restrict low-income borrowers from gaining access to credit. It finds that policymakers have shifted their focus from market competition and freedom of consumer choice towards financial inclusion and poverty reduction. The result is a better understanding of the regulation and development of two credit products that were, and remain, vital to the working class. This research shows that the motivations for reform have varied over time. In 1872, 1900, 1927, 2006 and after the Great Recession, policymakers sought to restrict ‘illegitimate, evil and predatory’ small loan lenders, who were accused of exacerbating the conditions of the poor. In 1974, policymakers sought enhanced regulation such as information disclosure to increase market competition and decrease the cost of borrowing. In 2014, the FCA believed that the payday loan market still lacked price competition and implemented price controls as a corrective measure. Less varied were the issues of concern and proposed solutions. This research identifies five main areas of regulatory concern: the high cost of loans, advertising, the use of an annual percentage rate (APR), the legitimacy of moneylenders and pawnbrokers in the financial system and regulatory enforcement. It identifies three main policy responses: price controls, information disclosure and licensing. By analysing the motivations, debated issues and proposed solutions, this research examines wider questions concerning freedom of contract, borrower rationality, bargaining inequity, market segmentation and credit rationing. It contributes to the scholarly and policy dialogue on price controls, information disclosure and the development of non-bank lending. This research also provides new perspectives on the Victorian poverty debate and the modern financial inclusion agenda as they relate to the interaction between regulation, high-cost credit and poverty. 3 Contents 1 Introduction ................................................................................................... 9 A. INTRODUCTION ..................................................................................................... 9 B. HISTORIOGRAPHY ............................................................................................... 27 C. THE SUPPLY CHANNEL ........................................................................................ 36 D. SOURCES .......................................................................................................... 40 2 The Pawnbrokers Act 1872 ......................................................................... 44 A. THE MARKET UNDER THE PAWNBROKERS ACT 1800 ............................................. 45 B. CONFLICT, COMPROMISE AND THE CASE FOR REFORM .......................................... 53 C. THE SELECT COMMITTEE AND THE ACT ............................................................... 66 D. CONCLUSION ..................................................................................................... 96 3 The Moneylenders Acts 1900-1927 .......................................................... 101 A. THE JUDICIARY AND MARKET INTERVENTION ....................................................... 102 B. THE FORMATION OF REGULATION 1897–1900 .................................................... 109 C. THE FORMATION OF REGULATION 1925-1927 ..................................................... 138 D. CONCLUSION ................................................................................................... 158 4 The Consumer Credit Act 1974................................................................. 162 A. MARKET AND POLITICAL DEVELOPMENTS ............................................................ 163 B. THE CROWTHER COMMITTEE 1968-1971........................................................... 177 C. THE CONSUMER CREDIT ACT 1974 ................................................................... 205 D. CONCLUSION ................................................................................................... 214 5 Financial Inclusion and the Great Recession ............................................ 218 A. POLITICAL AND MARKET DEVELOPMENTS ............................................................ 219 B. THE CONSUMER CREDIT ACT 2006 ................................................................... 234 C. THE GREAT RECESSION AND MARKET EXPANSION .............................................. 249 D. CONCLUSION ................................................................................................... 279 6 Conclusion ................................................................................................ 285 Sources ........................................................................................................ 297 4 List of Figures Figure 1 Pawnbroking licences, 1870-1930 ......................................................................... 96 Figure 2 Pawnbroking licences, 1800-1970 ....................................................................... 166 Figure 3 Moneylending licences, 1925-1970 ..................................................................... 169 Figure 4 Gini coefficient .................................................................................................... 225 List of Tables Table 1 Regulatory episodes ............................................................................................... 13 Table 2 Geographic dispersion of licenced pawnbroking, 1870 ............................................ 47 Table 3 Estimated annual pledges by location ..................................................................... 48 Table 4 John Dicker, transactions for the week ending 7 May 1870 ..................................... 50 Table 5 Top ten PPRA funding support by city .................................................................... 61 Table 6 The Derby scale ..................................................................................................... 63 Table 7 John Dicker business analysis, June 1870 .............................................................. 78 Table 8 Summary returns of six testifying pawnbrokers ....................................................... 79 Table 9 Saturday, 7 May 1870 loan summary ...................................................................... 81 Table 10 Financial return for 30 Liverpool pawnbrokers, 1869 ............................................. 83 Table 11 Estimated redemption rates .................................................................................. 90 Table 12 Schedule of guidance interest rate ...................................................................... 122 Table 13 Data on 15 moneylenders................................................................................... 142 Table 14 Licencing distribution, 1969 ................................................................................ 165 Table 15 Pawnbroking market estimates, 1970 ................................................................. 168 Table 16 Pledge analysis, 1970 ........................................................................................ 168 Table 17 Pawnbroking and moneylending licenses, 1942-1970 ......................................... 170 Table 18 Average rates on unsecured loans ..................................................................... 172 Table 19 Unsecured loan profile........................................................................................ 172 Table 20 Actual versus effective rates ............................................................................... 212 Table 21 Payday loan market growth ...............................................................................