Tag Archives: debt

It’s Time to Wake Up to Britain’s Looming Personal Debt Crisis

This piece was originally posted in the Daily Mail on the second of January 2015.

Today you’ll hear groans from payday loan companies as a cap is introduced on the cost of credit. Britain’s legal loan sharks claim they have cleaned up their act. The Government say they are getting tough with these firms. Mainstream lenders champion their responsible behaviour in contrast. Yet still the public drowns in bills, with little respite in sight. It’s time to wake up to our looming national personal debt crisis.

This week research was published, to little comment, showing our personal debt has doubled in the last year. We are now so accustomed to borrowing for everyday items such as food, rent and travel that news of the gaping hole in family finances makes our shoulders simply shrug.

It is an inconvenient truth that for many years it has mattered more to short term economic gain to encourage easy access to credit, than endure the long term pain required to tackle our spending habits. With estimates that nine million are already in over their heads, and possible interest rate rises on the way, Britain can no longer afford to ignore the consequences for our economy and our country. Much of this debt is on credit cards. Six months ago the average credit card balance was £1,700 – it’s now nearly £3,000.

Families aren’t just juggling cards to cover basic costs. They also now owe twice as much on personal loans. Amounts outstanding to payday lenders have more than tripled. With low wages and erratic inflation, credit has become an inevitable necessity. R3, the insolvency professionals, claim the average indebted British adult owes the equivalent of three months’ salary. Every single day we pay out £163m alone on interest repayments on debt – the equivalent of paying for 5,000 nurses. Little wonder one in five of us expects to struggle more financially in 2015 than 2014.

Given the level of personal debt Britain has and its impact – not just on our economy but our family lives too – this should be a top political priority. Yet the Government’s deafening silence shows how this willingness to take on debt can be seen by some as an opportunity. Office of Budget Responsibility figures predict new borrowing will take total household debt to £2.6trillion by the end of the decade, but our incomes will rise by only £266billion. Without action, the gap between what we earn and what we owe will reach a record high by 2020.

For George Osborne’s plans for reducing public debt, this rising private debt is crucial to stimulating our sluggish economy. Without such consumer spending our recovery is at risk; with it our personal finances will become even more hazardous. Either way, we will all pay the price of the Chancellor’s choices.

Today’s cap on credit must be lowered to have real bite. That the cap is £1 below what legal loan sharks currently charge, and also allows companies to make money from default payments, means it will do little to tackle their predatory behaviour. Many legal loan sharks are already ahead of these rules, offering products designed to evade the cap all together but still squeeze people trying to make ends meet. But payday lenders are just one component of Britain’s credit industry that benefits from encouraging unsustainable levels of debt. Banks, credit and store card companies cannot claim the moral high ground as to who is feeding our unhealthy credit habits.

For too long irresponsible lending has gone unchallenged, with the highest rates and anti-competitive practices often targeted at the poorest borrowers. In this unfair market many borrow to stay solvent, only to find themselves trapped in a debt they will likely never escape.

Today’s cap is at best the start, not the solution, to giving British consumers the protection they need to be able to make ends meet. Reform of our banks must be matched with reform of our consumer credit industry.

We need to tackle those who exploit families on the tightest budgets and extend access to affordable alternatives. Without making overhauling our national credit habits a priority Britain won’t just be broke in 2015. It will perpetually be in the red, struggling to ever get back into black.

Cap on Credit Just the Start of the Battle to Fight Britain’s Personal Debt Crisis Warns MP

As the Financial Conduct Authority’s cap on high cost credit comes into force against a backdrop of ever increasing personal debt Labour’s Shadow Competition and Consumer Affairs Minister, Stella Creasy MP, warns:

“Almost a third of us say we had to borrow to get through the festive period, and 1 in 10 of us plan to get a payday loan to cover these costs. These are families already struggling with making ends meet, facing difficult bills for food, housing, travel and utilities. Given personal debt has doubled in Britain in the last year, challenging the practices in the consumer credit industry which makes these debts unsustainable is crucial to helping Brits who will start the year in the red not the black.

“Yet the cap on credit coming into force today is just £1 lower than current rates legal loan sharks charge, and still encourages companies to push people into debt by allowing them to profit from default charges.  Little wonder despite intense scrutiny many of these firms can still make nearly three quarters of a million pounds a week from British customers. And it’s not just the payday loan firms using the financial pressure Britons face to make money, with evidence credit card companies and banks are also profiting too.

“We are spending £163 million in interest alone on our personal loans– the equivalent of over 5,000 qualified nurses for a year. Payday lending is a symptom of these problems, not their only cause. That is why the next Labour government is determined to reform our consumer credit industry- abolishing fee charging debt management plans, providing more affordable credit through credit unions and regulating the advertising for payday lenders and their presence of on our high streets.

“With the Money Advice Service warning that nine million of us are in danger of going under with Britain’s personal debt habit we cannot afford to ignore these practices. The FCA’s New Year’s Resolutions must be to get to grips with problem debt now holding back our country.”

Ends.

Notes:

1.     R3, the association of business recovery professionals, report in their December 2014 Debt Snapshot that 57% of all people in work struggle to make it to payday while 27% of us are planning to get through Christmas by borrowing.

2.     As a consequence 8% of British adults say they are likely to take out a payday loan in the next six months.

3.     Stepchange debt charity saw a 42% rise in payday loan cases this year with 13,000 more payday loan borrowers seeking help in the first half of 2014 compared with the same period in 2013 –http://www.stepchange.org/Mediacentre/Pressreleases/paydayloanproblemsonrise.aspx

4.     The Financial Services Ombudsman received double the number of complaints about payday lenders in 2013-14 than in the year before and found against lenders in two-thirds of case:http://www.financial-ombudsman.org.uk/news/updates/2014-payday-loan-debt.html

5.     A cap of 0.8% per day means companies can charge £24 per £100 borrowed.  In its market study the OFT found the average cost of providing credit to be £25 per £100 meaning many firms were offering it at much lower costs. This is only in cases where people pay back their loans on time. Charges can be as much as double the initial loan if people fall behind.

6.     Having reviewed the potential effect of the cap on competition in the industry the Competition and Markets Authority found: “Our view is that scope for substantive price (and non-price) competition within the constraints of the proposed price cap would remain” p.98 https://assets.digital.cabinet-office.gov.uk/media/5435a640ed915d1336000005/Payday_lending_PDR_and_appendices.pdf

#smartspenders: Reforming Britain’s Consumer Rights Legislation

unnamedThis month the Government announced plans to bring forward its Consumer Rights Bill. As the Shadow Minister for Consumer Affairs, I will be leading Labour’s response to these proposals in the coming months both in parliament and in our campaigns.
At present, this piece of legislation offers little to prevent the many problems consumers in Britain face; concerns which are leading to debt and distress for too many not just in Walthamstow but across our country. As the person leading on this for Labour, my role is to put forward alternative legislation and seek to persuade the Government to change their plans to match these ambitions instead. If we are successful, as we were with the payday lending proposals, I believe this could help the public get a much better deal for a wide range of goods and services and help rebalance our economy.
So far the signs that the Government will listen to concerns about how consumers are being shortchanged and how we could address this are not good. You can read my speech in the second reading of this legislation in parliament here . As you can see, the Government ruled out taking action on a wide variety of problems that are causing real financial difficulty for many- from extortionate fees for pensions, banking and housing, to persistent dodgy builders and rogue second hand car traders, ticket touts, nuisance callers, premium rate phone lines and copycat websites which charge fees for free public services. The Government don’t seem to understand that tackling everyday rip offs like these could help millions of people to reduce their overall cost of living and better manage their finances.  If we could all save just £3 a day from our expenses, by the end of a year we’d be £1000 better off- enough to cover the estimated annual cost of unexpected bills!

We want to try to change their minds on ignoring these problems- but we need your help to make them listen and to tell the truth about the sharp practices consumers are facing. We want them to realise how important it is to rewrite their Consumer Rights Bill so that it gives real consumer powers to us all. You can find out how you can help the #smartspenders campaign here – to sign up to be part of this campaign please email me on stella@workingforwalthamstow.org.uk.

 

Government Lets Legal Loan Sharks Slip Through The Net Again says MP as FCA Dodges Credit Caps Question

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Responding to the proposals outlined for consumer credit lenders in the Financial Conduct Authority’s rulebook, Stella Creasy MP again warned time was running out to tackle the problem legal loan sharks cause and called for Government to introduce a total cost cap on credit. Speaking about the proposals Stella said:

“Whilst I welcome the focus of the FCA on legal loan sharks and their research into capping, the lack of real action again today on the actual cost of credit itself will be a blow for many caught in a spiral of debt due to payday lenders. The FCA’s hands are being tied by a Government that consistently speaks out against what most other countries have done to tackle legal loan sharks by opposing capping what these companies can charge. With 80% of these loans for just putting food on the table, or a roof over their heads, we know people are borrowing for everyday essentials not luxuries. Price caps would make these loans more affordable and so less like to cause debt problems in themselves. The measures the FCA announced today may go some way to limiting some of the damage being done, but they won’t prevent them like capping would. The FCA today have said they don’t have the data from lenders to set a cap – and that’s why the Government must step in before April 2014 to make it a requirement for these companies to work with the FCA in setting a proportionate cap. That’s why Labour is committed to introducing a total cost cap- and why it’s wrong that the government keeps ruling it out.”

Commenting on the FCA proposals to limit rollovers Stella said:

“An OFT report into the industry has shown how only 11% of lenders assess the affordability of a loan the first time the loan is rolled over – with people using multiple lenders to pay off multiple loans, whilst a third of loans are repaid late or not repaid at all. Limiting rollovers within individual firms will do little to stop this payday tourism, as borrowers move from company to company taking out loans to cover existing ones.”

Commenting on plans to limit the ability of companies to use continuous payment authorities Stella said:

“It’s right that we reform how CPAs are used, but limiting the number of times they can be used doesn’t deal with the amount the firms are taking from bank accounts which is the real source of problems. Lord Freud says the Government is worried about companies exploiting universal credit payments to make sure they get their money – these proposals won’t prevent that, and if anything could make it more likely these firms will debit bank accounts early to ensure they get their fees. That ministers think the way in which money is taken is the problem- rather than the amount itself- shows how hopelessly out of touch they are on this issue.  Jo Swinson calls capping the ‘warm and fuzzy’ approach, failing to understand it’s the cost of credit itself which causes the problems in the first place to consumers.”

She continued to discuss the problems with the market:

“The case for change is overwhelming -legal loansharks are making profits of more than £1m a week as British consumers struggle with the rising cost of living. Report after report shows this industry is out of control – and the on-going investigation by the Competition Commission into the entire industry shows tinkering around the edges using rulebooks and guidance will do little to fundamentally overhaul this industry. For the past 3 years, the Office of Fair Trading, the Government and payday lenders themselves have all promised to take action on this industry following repeated warnings continually falling on deaf ears. Yet 3 years later, and every rule in the book still broken, legal loansharks continue to make 50% of their profits on loans rolled over or refinanced at least once and families are being forced to borrow for basics at rates of over 5,000%. Those who represent these lenders, such as the Consumer Finance Association, talk tough – claiming that the problem is just a few bad apples. Yet time and time again they refuse to debate with me the merits of making credit more affordable to prevent people getting into difficulty in the first place.”

Speaking about the Sharkstoppers’ campaign Stella said:

“The announcements today show just why Sharkstoppers’ campaigners fought to give the FCA the power to cap the cost of credit from April 2014 – so that the FCA could act to protect consumers and prevent debt problems. Yet without the support of Government to do this they are stuck, unable to really take on a litigious and aggressive industry which is protecting its profit margins. That’s why we are responding to the FCA’s consultation reaffirming our warning that without the FCA using its power to put a cap on the total cost of credit, legal loansharks will continue to be written blank cheques – making millions off hard-pressed Britons. Alongside a cap, the Centre for Responsible Credit and other organisations have called on the FCA to implement real-time credit checking across the industry – forcing companies to take responsibility for the lending they provide.

Only tough action by the FCA and the Government can stop the next 3 years being easy pickings for the legal loansharks – preventing people from getting into a damaging cycle of debt at the hands of these companies by giving them access to affordable credit, rather than just sitting by and trying to limit the damage they cause. British consumers deserve better – access to affordable and responsible credit, and action now can give them protections that others around the world enjoy. Lower levels of personal debt, lower levels of illegal lending and greater access to affordable credit. We can’t afford not to cap.”

Ends.

Notes

1. The FCA published its proposals for consumer credit lenders in the Financial Conduct Authority rulebook – you can find out more about the proposals in full by visiting the FCA website.

–          The consultation closes on the 3rd December 2013 and you can take part by reading the proposal document by visiting the website.

–          Martin Wheatley from the FCA has said the regulator is looking at a total cost cap but currently does not have the market data to assess where to place the cap level.

2. The Office of Fair Trading launched its review into compliance with its responsible lending guidance in February 2012.

–          You can view the report in full by visiting the OFT website

–          Half (48%) of payday loan users have taken out credit that it turned out they couldn’t afford to repay

–          A third (29%) of payday loan users have taken out credit that they knew they couldn’t repay and in the last 12 months of 2012, more than half (57%) of people with payday loans missed a payment and incurred charges because of missed of bounced repayments.

–          The Office of Fair Trading referred the market to the CC for investigation in June this year. The CC is now carrying out its own comprehensive investigation, to see if there are any features of this market(s) which prevent, restrict or distort competition and, if so, what action might be taken to remedy them. For more information visit the competition commission website.

3. The Sharkstoppers campaign pack contains campaign ideas for making local communities legal loanshark free zones – It can be downloaded from Stella Creasy’s website and has been circulated to campaigners across the country. You can download the pack by clicking here 

4. Stella Creasy MP has been campaigning for caps on the cost of credit since 2010. You can find more details on her campaign hereFor more information visit Stella Creasy MP’s website at www.workingforwalthamstow.org.uk or call Jon Chambers on 020 8521 1223.

Cap cost of credit to ease pains of Broke Britain says MP

shark1-290x290Responding to new figures released by R3, the Association of Business Recovery professionals, showing the public resisting payday lending, Stella Creasy MP has renewed calls for the Government to end legal loan sharking in the UK;

“Today’s research from R3 shows the fightback against legal loan sharking is beginning to bite, as Britons are heeding warnings about the damage this type of lending can do to their personal finances. Whilst one in ten of those struggling financially are concerned about their payday loan debts, this data shows a decline in those intending to use these products to make ends meet in future.

This does not mean Britain is getting better off or is less in need of credit- with more believing their financial position will worsen than improve in the remainder of 2013. That’s why we can’t afford to be complacent about the conduct of these companies- with 80% of payday loans being used just to afford food on the table or putting a roof over their head, British consumers deserve action now.

Worryingly, R3’s research also shows payday borrowers are dipping into their bank overdrafts to pay off payday loans – making it harder for them to make ends meet the following month. Indeed, 40% of those who took out a payday loan say this loan made their financial position worse. Even though the Office of Fair Trading has referred the entire industry to the Competition Commission because of their concerns about these companies, it is the price of credit itself that is the real root of concern. By refusing to consider a cap on the cost of credit the Government continue to give the industry a free ride to cause havoc.

The new Financial Conduct Authority has the power to cap on the cost of credit but needs the data from these companies to be able to do so- if the industry is serious about their claims to responsibility they should provide it to the regulator now. If 2013 is not to be the year Britain is truly broke not broken, consumers here need the protection others around the world enjoy.

Even if the Government won’t get its act together we can all keep fighting back. That’s why today we are launching the 2013 Sharkstoppers campaign pack. We are calling for organisations and individuals across our society to help halt the relentless march of payday loan companies across our high streets and internet until we see real reform of this industry. Whether asking celebrities to commit to not to promoting these firms, shopping centres or transport hubs to removing their all too often misleading adverts from their premises or running debt advice workshops we can all help press the case for change. With yet another

set of evidence that shows the debt and misery this unfair market causes – it’s time to put the needs of British consumers first and end legal loansharking in the UK in 2013.”

Ends

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Notes for editors

Data released today by R3 notes that;

  • There has been an increase in the number of adults who are worried about their debts with half of GB adults, equating to just over 20 million people, say that they are worried about their current level of debt, an increase from 42% in February this year.
  • One in five adults say that they are very or extremely worried about their current level of debt, up from one in ten in early 2013
  • Payday loans continue to give rise to concern but the potential customer market appears to be shrinking
  • Of those adults worried about their current level of debt, 10% say that they are worried about debt from payday or other short-term, high interest loans.
  •  Encouragingly, however, less than one in 10 British adults say they are likely to seek a payday loan in the next six months (7%), a drop from 11% last recorded in October 2012.
  • The highest concern about payday or other short-term, high interest loans is evident amongst 18 to 24 year olds. Of those within this generation who are worried about their debts, one in five (19%) say that they are worried about payday or other short-term loan debt, up from 8% in February and almost matching the highest levels of concern seen in this age group in July and October 2011.
  • For more information on the research by R3 contact Nick Cosgrove by email or on 020 7566 4215 or visit the R3 website at www.r3.org.uk 
  • The Sharkstoppers campaign pack contains campaign ideas for making local communities legal loanshark free zones – offering materials to help lead action to kick out advertising from sports grounds, shopping centres and university campuses as well as asking celebrities to make sure they don’t sign up to promote payday lenders on our TV sets and promote debt advice and affordable credit within localities. It can be downloaded from Stella Creasy’s website and will be circulated to 2,000 campaigners across the country. You can download the pack by clicking here .

As Competition Commission Inquiry Announced, MP calls for Moratorium on Payday Loan Promotion

shark-290x290Welcoming the news that the Office of Fair Trading has taken the decision to refer the whole payday loan industry to the Competition Commission for investigation, Labour and Co-operative MP for Walthamstow, and industry reform campaigner Stella Creasy MP said;

“I’m pleased the Office of Fair Trading has referred legal loan sharking to the Competition Commission for investigation- its time to end the myth that there are a few bad apples and recognise the way the entire industry works is causing problems for millions of British consumers. Legal loansharks have been able to rack up huge profits on the back of British consumers struggling with the rising cost of living and a regulator without teeth allowing 5 years of talking to result in no action. When 80% of these loans are being taken out to just cover the cost of basics like food, rent and travel costs – it’s time to call time on the lax self-regulation of this industry.

The Competition Commission must look not just at individual companies, but also at what a lack of regulatory measures such as a cap on the cost of credit does to the affordability of loans. We know such measures have made a real difference to the market in other countries and the damage payday lending can do to their financial health. Year after year and report after report the widespread damage they are inflicting on consumers has been laid bare and yet still the industry claims it can sort itself out. That’s why we must deal with the root cause of the problem by capping the total cost of credit and so limiting the amount any person can owe on a loan. But this investigation could take up to 2 years – time that British consumers cannot wait before tackling the problems in the industry.

Therefore I hope those promoting these companies will support a moratorium on doing so until we know the outcome of the Competition Commission’s investigations. So too next week these companies have been called into see the Minister – if I were invited to attend I would be asking them and the Government to show they are serious about tackling these problems. The Financial Conduct Authority has the power but not the data to introduce such a cap- if ministers want to show they are finally getting to grips with legal loan sharking in Britain they should demand the industry share its data with the FCA now so that they can set and introduce such a cap without delay. Given the debt and misery involved for those affected by this unfair market its time to put the needs of British consumers first.”

Working for Walthamstow in 2013: #7days4stow Update

7days4stowlogoThe #7days4stow project has now been running for four months – and already has achieved fantastic results that are making a real difference for people in Walthamstow. Volunteers from across the local area have been keeping the nightshelter open and staffed during the extra cold snap and have been raising funds and a new venue for the local Eat or Heat foodbank.

There are now already eight projects that together are helping protect Walthamstow from the financial and social impact of austerity and help us fight for a better future for everyone here. They are:
  • Befriending- this project is helping link isolated people in Walthamstow with community and residents groups for social and emotional support
  • The Eat or Heat foodbank- this project is ensuring all residents have access to food by providing emergency parcels of free non perishable goods
  • The Forest Nightshelter – this project is helping support emergency accommodation for those who are homeless in E17
  • Sharkstoppers- this project is helping tackle the legal loan sharks preying on our community and improving access to affordable credit for local people
  • Cost Free Kids – this project is helping parents in walthamstow with reducing the costs associated with parenthood
  • Education- this project is helping promote educational attainment and employment opportunities for our local young people
  • Housing-this project is investigating the reasons behind rising housing costs for those living in Walthamstow
  • Community Kitchen- this project is promoting cookery skills to help local residents cook cheap and nutritious food on a tight budget

All these projects are seeking people to take on small tasks which combined will make a big difference. You can find full details of all the requests for help on this website.

The next #7days4stow planning meeting is going to be held on Sunday 21st April between 4.30pm and 6.30pm at the St Mary’s Welcome Centre, next to St Mary’s Church in Walthamstow village. Even if you can’t attend on Sunday 21st April but are interested in learning more please do get in touch – or check out the Facebook group to keep upto date with the ways in which you can be involved.

This month alone over 11,000 families in Walthamstow had their incomes affected by changes in working tax credits and nearly a 1,000 people face the risk they may lose their homes through the so called ‘bedroom tax’ - the #7days4stow work is a great way we can together as a community ensure the impact of these changes on local people are addressed.  Alternatively:

  • Help others learn about the #7days4stow ethos- the Institute for Volunteering is coming to Walthamstow on Tuesday 23 April to talk to people involved in this project about their experiences and what others can learn from them. You can find out more here.
  • Can’t make the 21st but want support on how to build and sustain a #7days4stow project? there will be a free training event run by the Movement for Change in Walthamstow on Saturday April 27th for any local resident who wants to learn more about the #7days4stow project. You can book a place by signing up online here.
Everyone in Walthamstow can be part of #7days4stow so please do share details of the next meeting and of the project with your local friends, neighbours and family. Even if you can’t see anything you would like to sign up to do please do come along on Sunday 21st April to meet others in our local community and support them – all we ask is that you please RSVP by email or on Facebook so we know how many biscuits to bring!