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Payday Loans

Volume 746: debated on Wednesday 26 June 2013


Asked by

To ask Her Majesty’s Government what further action they plan to take to tackle the issue of payday lending.

As I highlighted in last week’s debate, the Government are deeply concerned at the evidence of consumer harm in the payday loans market. That is why the Government and regulators have jointly announced a strong action plan, with both immediate and longer-term measures. Tough enforcement and compliance action by the OFT now, combined with a move to a new regulatory regime equipped to deliver robust consumer protections in the future, will tackle the real concerns about this market.

My Lords, the most reverend Primate the Archbishop of Canterbury and I both called for a summit on payday lending in the debate last Thursday, so on the face of it the Government’s announcement is very good news. Then we get the announcement in the CSR today of the seven-day waiting period for benefits. That must have Wonga and the rest of the payday lenders jumping for joy. What assurance can the noble Viscount give the House that the summit is not a sham exercise and that something will actually come out of it?

I welcome the noble Lord’s mention of the summit and am delighted that this will be an opportunity for the Government and regulators to take stock of progress in delivering on actions set out on 6 March. It will provide a firm forum for discussion of what more is needed to address the outstanding concerns, and I look forward the results. The announcement was made by my honourable friend Jo Swinson.

My Lords, is the Minister aware that there is a great lack of financial understanding among a lot of ordinary people, such as me, as to exactly what rates of interest are being charged? I then read in today’s paper of the worry about the shortfall that might occur with all the young people getting mortgages. The reason is the same: if interest rates go up they will find that they are out of pocket. Does he not think that it is terribly important for us to try to see that everyone has a degree of understanding of what they are letting themselves in for? People get terrible shocks with this payday lending in particular.

My noble friend makes a very good point. This is precisely why the summit will, I hope, be helpful in highlighting the concerns. However, I stress that the Government have been taking some tough action and have given 50 firms—90% of the market—12 weeks to change their business practices or risk facing legal requirements or the loss of their licences. Two have already told the OFT that they are surrendering their licences. Since 6 March, the OFT has revoked the licences of three firms engaged in payday lending and has three further investigations open.

Noble Lords will be as horrified as I was yesterday to discover that the leading online payday lending company has raised the interest rate on its loans from 4,214% to 5,853%. Religious leaders, community leaders and Members of both Houses of Parliament have begged the Government to cap interest rates, but they continue to refuse. Why is this? Could it be that some of the shareholders in some of the payday lending companies are also some of the donors to the Conservative Party?

The Government remain very concerned by the evidence of harm in the payday loan market, but we do not think that the current evidence points to a cap on the cost of credit as a solution at this time. The Bristol report on high-cost credit indicates that a cap could have unintended consequences and risks harm, such as reducing consumers’ access to credit and leading to crime, lenders imposing new charges outside the cap, and less understanding shown to customers. Therefore, we do not agree that this is right or, indeed, that a ban would be right.

My Lords, I will raise a purely legal point. Does the Minister accept that under the Consumer Credit Act 2006 there is substantial protection—potentially, at any rate—for a debtor who would otherwise suffer injustice? Under that Act, a judge is entitled, where he considers that there are unfair provisions in the loan contract or that the lender has acted in an unconscionable way, to deprive that creditor of relief or to rewrite the contract to make it fairer. Can the Minister show the House that such matters are brought constantly to the attention of judges, particularly district judges, who deal with these matters, so that such cases of gross unfairness are properly dealt with?

The noble Lord is right to raise the issue of continuous payment authorities. The Government have real concerns about the way in which payday lenders can access money from their customers’ bank accounts. We have been pressing the industry on further transparency, and payday lending codes commit lenders to explaining clearly what a CPA is, how it works and how to cancel a CPA.

My Lords, given the Government’s racing willingness to import financial expertise from Canada, can my noble friend tell your Lordships’ House whether he has any plans, in the light of the forthcoming payday loan summit, to appraise and learn from the very good, robust and helpful code of practice developed in Canada, which covers such important issues as the non-rollover of loans, no multiple loans, and a responsible policy towards advertising such loans?

The right reverend Prelate is right to point out that we can learn, as ever, from other countries. In the debate last week, my noble friend Lady Kramer made a valuable point about community development finance institutions. In the UK, the Prime Minister announced the co-operatives consolidation Bill in January 2012, and work on drafting the legislation has begun. The focus should be on credit unions and community-based credit access.

My Lords, I am one of those who believe that a cap is workable. Can the Minister give me his assurance that at the summit that issue will be thoroughly discussed and considered and that the Government will not come to a judgment in advance on such a crucial question?

I am very certain that it will be part of the discussions. I can give no guarantees, but the whole point of the summit is to discuss these important matters further.

My Lords, what action will the Government take to ensure that the monthly payment of universal credit on top of benefits now being delayed for a week does not send more people in poverty into the hands of payday lenders, as has been predicted?

The noble Baroness makes a valuable point on the transition to universal credit. When it is complete, we estimate that there will be approximately 8 million universal credit claims. My colleagues in the DWP and the Treasury are working together to produce the right sort of advice, and they have made clear that some claimants might need additional help to budget. We are working with the advice sector to provide the appropriate advice.