The Government are not aware of any robust research that quantifies the effect of payday loans on areas of social deprivation, but I expect that there are links. We are very concerned about the findings of the interim report from the Office of Fair Trading’s payday compliance review and strongly support any enforcement action that the OFT takes. Payday lending can work for some people in some circumstances, but it is not a solution to long-term financial difficulty.
Scotcash, which represents many vulnerable families in Glasgow, has brought to my attention a payday loan agreement in which the APR is a staggering 7,200,000%. Given that Which? has indicated that more than 48% of those who take out payday loans believe that they will not be able to repay them, is it not now time for the Minister to commit to firm statutory regulation in 2013 rather than relying on wishy-washy voluntary codes?
The hon. Lady raises two specific issues in her question. Although there is concern about high interest rates, just as when someone hires a car for three days they do not look at the annual cost of doing so, with short-term credit the APR is not necessarily the most relevant statistic. The hon. Lady’s second point was on affordability assessments and the detrimental effect of people being lent money they should not be lent when debt advice would be much more appropriate. That is a significant concern. The Government are considering the OFT’s review and the OFT is already taking action—it has opened formal investigations into several payday lenders. We expect the final report early in the new year and the Government are committed to ensuring that we take action on this issue.