Writing for PoliticsHome, Labour MP Stella Creasy urges peers to vote in favour of an amendment that would give new powers to the regulator to cap payday loan interest rates.
Today the House of Lords can send a signal to Britain’s avaricious legal loan sharks that this year Christmas won’t be coming early. Voting for Lord Mitchell’s amendment to the Financial Services Bill will give hope to the now millions of people caught in a toxic cycle of borrowing from payday and high interest loan companies to make ends meet.
ONS data shows families are being squeezed much more this timethan in previous recessions, as they experience both falling household incomes and rising inflation. Predictions wages will stay flat for years to come, fuel bills set to rise and massive cuts in benefits around the corner are all putting further pressure on pay packets, so consumers are rightly asking when will this all end. Little wonder research by Which? found a third of payday loan users had taken out credit they knew they couldn’t affordto repay in order to buy essentials such as food and fuel. Wonga made £45m profit last year and is expected to be worth $1bn by next year. It’s not just online lenders reaping the rewards of our current lax regulatory framework; Provident, the doorstep lenders, made £178m last yearand predicts another 300,000 new customers this year.
Despite repeated warnings, the Government continues to refuse to act. The consequences of their choice to do nothing are becoming clear, with many foregoing food to pay back their debts. They claim self regulation and the market will somehow fix these problems and look to the Office of Fair Trading to provide justification for their complacency. Since 2009 both the OFT and the industry trade bodies have been announcing, and renouncing, voluntary codes of practice for lenders. Repeatedly these lenders evade intervention and show they don’t even follow their own guidelines. The recent OFT report documenting widespread bad practise in the industryonly vindicated fears such an approach would be ineffective. As the Government claims the OFT will take action next year, we know this is the third time the same voluntary code has been proven, yet again, to fail. Even with an OFT ‘crackdown’, the reality is that existing UK regulations on this industry are weak and that as quickly as one firm is censured, another will take its place.
Expanding access to affordable credit is vital, but will not address the rapidly spiralling nature of the problem. In 2008 the Financial Inclusion Taskforce stated it would take ten years for credit unions to fill the demand for affordable credit, and that was before the recession hit. The OFT found there are 240 payday loan companies operating here, with thousands of stores now in Britain’s high streets and online. With these companies aggressively expanding their UK operations there is not time to wait for alternatives to be able to grow to challenge them. This map shows how out of touch we are in comparison to other nationson this matter and so just what fertile hunting our citizens are becoming for these legal loan sharks. Only introducing caps on the total cost of credit will give consumers the protection that others enjoy across the world in time to halt the personal debt crisis Britain now faces.
With the backing of the future Archbishop of Canterbury, Crossbench Peers and Mumsnetthere is widespread public support for this amendment. It would give regulators the powers to cap what these firms can charge if their conduct is found to cause consumer detriment. It's the first step on the road to developing a regulatory regime that follows best practice and could make high cost credit companies part of managing debt rather than causing it. Legal advisors are clear that without such explicit powers in law, these companies will be able to challenge any price intervention in the courts. Voting down this amendment will mean any efforts to tackle these companies will simply turn into a fee generating opportunity for lawyers.
These legal loan sharks like to claim they are an industry of which Britain should be proud. All the evidence of how avoidable these problems are suggests we should be ashamed of our failure to protect consumers. Let us hope today our Lords make us proud of them and back an end to legal loan sharking in Britain.