Labour MPs led by Stella Creasy vowed to keep up pressure on the Government to intervene in the high-cost credit market, with Parliament set to vote on the issue next week and with evidence mounting that so-called legal loan sharking is hitting the finances of thousands of families in the UK.
They have tabled an amendment to the Finance Bill which would force ministers to confront the issue of legal loan sharking once and for all. The move comes after ministers have so far failed to follow up on their commitment to the House to consider introducing a range of caps on the cost of credit.
Speaking ahead of the debate next Tuesday, Stella said:
“Ministers from both the Treasury and the Department for Business, Innovation and Skills have agreed with me in the past that the high-cost credit sector is a problem which needs to be addressed, but refuse to intervene in the market. With Moneysupermarket.com reporting a 58% spike in applications for payday loans in just one month, and with all the signs suggesting that high-cost credit is growing exponentially, it’s not good enough just to acknowledge the problem yet do nothing about it.”
“The Treasury thinks credit unions can expand quickly enough to compete with high-cost lenders. While I am an avid supporter of the credit union movement, the evidence suggests that this is a fantasy – credit union membership is growing by around 8% a year, but the payday lending industry alone is three times as big as it was two years ago. The total value of the high-cost credit sector is estimated at £8.5bn, dwarfing the value of the credit union movement. High-cost lending is here to stay, and the Government needs to get a grip on the issue before it destroys even more lives.”
“This amendment, which has the full backing of the Labour front bench, challenges ministers to tackle head-on the misery that these companies’ business practices cause. Every MP can vote on this, and I urge members from all sides of the House who recognise the urgency of the problem to vote for the amendment and ensure that our constituents are no longer preyed upon by exploitative lenders seeking to inflate their profit margins at the expense of people’s livelihoods.”
- “New Clause: High-cost Lending” has been tabled to the Finance Bill No.3, and will likely be debated on Tuesday 28 June. The amendment is as follows:
The Government shall lay before Parliament a review of all taxation measures contained in this Act that are applicable to those judged by the financial services authority (or its successor body) to engage in high cost credit lending. This review shall consider the following matters:
a) The nature of the high cost credit market and the proliferation of lending practices which are detrimental to consumers and or competition in the provision of credit to consumers;
b) The impact that taxation could have on the provision of high cost credit in the UK which is detrimental to consumers and or competition in the provision of credit to consumers;
c) Whether changes to taxation could discourage lending in a manner which is detrimental to consumers and or undermines competition in the provision of credit to consumers;
d) Other measures relevant to the high-cost credit lending sector that may prevent consumer detriment.
- This follows a debate in Parliament on 3 February which saw the House call on the Government to consider introducing a cap on the total cost of credit charged by companies shown to be causing consumer detriment. You can read the full proceedings of this debate here: http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110203/debtext/110203-0002.htm#11020321000817
- Home credit is now used by around three million people in Britain, and a further two million people take out payday loans. In 2009, the payday lending industry was worth over £1.2bn, more than three and a half times larger than in 2006 (Consumer Focus 2010), and figures for 2010 obtained by freedom of information from BIS show that this figure has now risen to £1.9bn.
- Of the 46% of people who struggle to make it to payday, 10% of them say it’s because of taking out high-cost credit (R3, June 2011).
- Dollar Financial, a US-based lender which owns The Money Shop in the UK, has expanded from just one store in the UK in 1992, which dealt primarily with cheque cashing, to 273 stores and 64 franchises across the UK by 2009. Now it plans to quadruple the number of stores it operates on Britain’s high street, and the OFT has recently green-lighted its $195m takeover of Payday UK, a large online lender. Meanwhile Wonga.com has secured an additional £73m of funding in order to expand its operations, and Provident Financial, Britain’s largest home credit lender, has seen its share price rise by 16.6% since the Comprehensive Spending Review. BrightHouse, which provides hire purchase or rent-to-buy agreements, has recently announced plans to nearly treble the number of stores it operates.
- Stella is available for further comment. To arrange this or for more information, please contact Will Brett at firstname.lastname@example.org or on 07979 696 265.