As research is released showing two thirds of the public back a cap on the cost of credit and so do MPs, Labour MP Stella Creasy today appealed to parliamentarians to listen to the British public and vote for proposals to tackle legal loan sharking. Amendment 40 to the Financial Services Bill will give the new Financial Conduct Authority the power to cap the charges made for credit and so the cost of borrowing, but the Government has pledged to oppose this measure.
Research commissioned by R3, the Insolvency Practitioners, and undertaken by ComRes shows this is out of touch with the views of the majority of MPs and the public. It shows:
• 98% of MPs and 93% of the public believe there is a problem with payday lending.
• 66% of MPs and 65% of the public support a cap on the total cost of credit.
Speaking ahead of the vote, which is expected late afternoon in parliament, Stella Creasy said:
'This research confirms just how strongly MPs and the public agree we need to tackle the problems caused by payday lenders to British consumers. They see the damage these companies are doing to families struggling in the current climate so it is frustrating that the Government is still refusing to act. This amendment, which has cross party support, would give the new financial regulator the ability to cap what these firms can charge. Without this amendment the Government is setting up the new regulator to fail as lawyers will fight such action and in an industry making millions out of charging extortionate rates of interest for credit fines will only have a limited effect. The millions now struggling with debt as a result of these firms deserve better- I appeal to MPs to vote with their conscience and help end legal loan sharking in the UK.'
1) Last year the payday loan sector in Britain was worth £1.7bn, a fivefold increase in the last few years. Research by R3 predicts nearly 4 million people will take out a payday loan in the next six months alone. The APR for payday lenders can begin at 444% and can escalate to 16,500% or more. And home credit lenders, who make home visits in order to collect repayments for their short-term loans, can charge £82 in interest and collection charges for every £100 lent.
2) Research published by Which? on Friday 18 May showed 61% of payday loan users had used the money for essentials- paying bills and buying household essentials like food. 57% of users had a household income of under £30k,
3) In an industry making so much money from lending to people at excessive rates of interest, fines will do little to curb their behaviour- one firm posted a pre-tax profit of £162m last year, and another paid its chief executive £1.6m.
4) Stella Creasy has been campaigning for a cap on the cost of credit since 2010. For further details please see her website www.workingforwalthamstow.org.uk.
5) Amendment 40 to the Financial Services Bill is as follows:
‘The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.’
• It explicitly enables the new regulator, the Financial Conduct Authority, to introduce a cap on the total cost of credit where they have judged that a product causes consumer detriment. During the first day of the report stage on April 24 2012 the Government minister, Mark Hoban MP, said the Government supported the FCA’s right to regulate in this way, but refused to support Amendment 40 which would explicitly allow this. The minister’s position goes against clear legal advice offered by Which?, the independent consumer rights organisation. Their barrister, John Odgers, states as follows:
‘It seems to me to be desirable that a power of price intervention should be spelled out, if it is intended. Financial services regulators have not in this jurisdiction previously exercised that type of power, and might in future be loath to do so without a specific statutory authority, as the use of such a power would be particularly likely to attract a challenge.’
• By not explicitly giving the FCA the power to intervene in this way, the Government is setting the FCA up to fail. If the FCA attempted to use its powers to cap the cost of credit where there is evidence of consumer detriment, it would open itself up to legal challenge. The current regulator, the Office of Fair Trading, has also admitted the involvement of ‘expensive lawyers’ in cases has influenced their ability to act, highlighting the need to address this problem.
• Amendment 40 solve this problem by explicitly allowing the FCA to use this power. The Government have said they are content for the FCA to use these powers. Amendment 40 is backed by MPs from five different parties, including three Conservative MPs.
ComRes Research detail
• Just 2% of MPs do not think that there is a problem with current ‘payday loan’ lending. While support among each of the three main parties is high, support is generally highest among Labour MPs.
• The most popular change is stricter regulation of advertising of ‘payday’ loans, with clear warnings about the true cost of total debt – 83% of MPs think this change should be made, of which more than three quarters of MPs from all three parties (Conservatives – 77%, Labour 88% and Liberal Democrats – 93%).
• Two thirds of MPs (66%) support a cap on the total cost that be charged for credit – this is supported by the vast majority of Labour MPs (90%), compared to around half of Conservative (46%) and Liberal Democrats MPs (51%).
• The majority of MPs think that a cap on the number of consecutive ‘roll-over’ loans should be introduced, in order to ensure that the original loan and interest has been paid off before a new loan is taken out. 59% of MPs think that this change should be made. Once again, Labour MPs are most likely to be in favour of this change – 66% of Labour MPs, compared to 58% of Conservative and 34% of Liberal Democrats MPs.
• The least popular proposed change is the introduction of a ‘real time’ central register to prevent people taking out multiple ‘payday’ loans with different lenders. Around half of all MPs (48%) think this change should be made, including 60% of Labour, 40% of Conservative and 27% of Liberal Democrat MPs.
• Notably, female MPs are more likely than their male counterparts to think that there should be an introduction of either a cap on the total cost that can be charged for credit, a real time central register, or generally stricter regulation of advertising of ‘payday’ loans.
• The vast majority (93%) of the public thinks that at least one of the changes suggested should be made in order to protect consumers from short-term, high interest ‘payday’ loan lending. Strikingly, general attitudes among MPs regarding specific changes to ‘payday’ loans tend to mimic that of the general public – a trend which is uncommon between MPs and the general public.
• As with MPs, the most popular change among the public is stricter regulation of advertising of ‘payday’ loans, with clear warnings about the true cost of total debt - around two thirds (68%) of people say this (compared to 83% of all MPs).
• The second most popular change is a cap on the total cost that can be charged for credit (65% of GB adults compared to 66% of MPs).
• Around half of all people (48%) think that a cap on the number of consecutive ‘roll-over’ loans should be introduced, in order to ensure that the original loan and interest has been paid off before a new loan is taken out. This compares to 59% of MPs.
• Opinions of MPs and the public also echo each other regarding a ‘real time’ central register to prevent people taking out multiple ‘payday’ loans with different lenders – 46% of GB adults think that this change should be made, as do 48% of MPs.
• Notably, 93% of the public think that any one of the changes above should be made in order to protect consumers from short-term, high interest “payday loan” lending.
• Just 7% of GB adults and 2% of MPs do not think that is a problem with current ‘payday loan’ lending.
ComRes interviewed 2044 GB adults online between 27th and 29th April 2012. Data were weighted to be representative demographically of all GB adults. ComRes also interviewed 152 MPs online and by postal questionnaire between 18th April and 18th May 2012. Data were weighted to reflect the exact composition of the House of Commons in terms of party representation and regional constituency distribution.