My Lords, the Government have made it clear that payday lenders should make loans only to those who can afford to pay them back. From April 2014, the Financial Conduct Authority will require lenders to undertake thorough affordability assessments to ensure that borrowers are able to make sustainable repayments. No later than January 2015, the FCA will cap the cost of payday loans so that borrowers in financial difficulty do not face spiralling debt.
My Lords, I am most grateful to the Minister for his reply, but he has not actually given me the answer I needed because my skills at mathematical calculations are not great at the moment. If my noble friend wanted, for example, to take out a payday loan for £1,000 to cover him over the Recess, what would the rate of interest and repayment be over a matter of a few weeks?
My Lords, in 2008, 12 million people viewed advertisements for payday lending companies. Last year, the total was 7.5 billion. Do the Government feel that the time has come for us to ban advertising for payday lending on television, particularly when it is directed at children?
My Lords, the Advertising Standards Authority has been looking at a rising number of complaints about payday loan advertising on television. It has the power to ban misleading ads and already has done so in respect of ads placed, for example, by Cash Lady and FirstPayDayLoanUK. From April next year, the FCA will have the power to ban misleading financial promotions. It will be able to look at advertising and the whole way in which payday loans are promoted under that new power.
My Lords, there is deep concern in the social and community-based housing movement because the payday loan operators get access to people’s personal accounts to take the direct debit. The danger is that when people receive a rollover loan, in many cases the payday loan company has taken all the money out of that account and left the housing association with a tenant who is in deep arrears. Sometimes they are forced to take out eviction notices, which they are very reluctant to do. Can this be looked into?
My Lords, this matter has been looked into. The Financial Conduct Authority, which takes responsibility in this area from next April, has already proposed limiting continuous payment authorities to two payments and reducing rollovers to two. It has the power to constrain them further than that if that is still seen to be an issue. That is one of the things that the FCA will look at as part of its assessment of the total cap of the cost of payday loans, which it is currently considering.
My Lords, I will follow the previous two speakers but extend the question a little more widely. What steps do the Government propose to take to ensure that payday loan operators cannot simply move their headquarters overseas and operate outside the restrictions that are going to be brought in?
My Lords, under the e-commerce directive, which was introduced during the lifetime of the last Government, payday loan operators are able to relocate. However, a majority of EU member states already have some kind of cap on the cost of payday loans, even if not necessarily as comprehensive a cap as we have, and there is an ongoing debate in those member states that do not yet have a cap about implementing one. There are already a majority of EU member states to which it would almost certainly be uneconomic or pointless for payday loan lenders to switch their bases of operation.
My Lords, a lot of effort is being undertaken by the FCA to make sure that the adverts are not misleading. We debated this at Third Reading of the banking reform Bill. The key thing is that people should know what the repayments are, not just in terms of the interest rate—people are very often not desperately familiar with that—but in terms of being absolutely clear about what they have to repay and when. The point that possibly lies behind the noble Lord’s question is whether there should be payday loans at all. As long as payday loans are legal, people have to make some sort of assessment about whether they are going to be in a position to repay them. What the Government and the FCA are committed to doing is to make the costs as clear as possible and limit the potential downside of less than prompt repayment.
My Lords, what consideration, if any, has been given to introducing a real-time database of payday loans in order to ensure that the proposed FCA rules can be properly monitored and enforced and, in particular, to avoid the problem—a special one at this time of year—of people being able to take out multiple loans from different companies at the same time?
My Lords, we heard a moment ago about the danger of lenders from other EU countries undercutting any legislation or regulation that we introduce in this country. Has the noble Lord considered discussing with the European Commission the possibility of legislating on an EU-wide basis for the single market as a whole?
My Lords, this is a rapidly moving area. If you go back five years, it was not an issue. We are discussing with other member states the operation of the consumer credit directive, for example, and the way in which the market is evolving. As the FCA moves towards putting in place a cap of the total cost of payday loans, we will see exactly how the system is working in the majority of those member states that already have a cap and whether there is any real advantage in moving to a Europe-wide system, or whether the series of national caps is proving effective.