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.”
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 here. For more information visit Stella Creasy MP’s website at www.workingforwalthamstow.org.uk or call Jon Chambers on 020 8521 1223.
Responding 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.”
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 .
Welcoming 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.”
The #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.
- 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.
Responding to today’s publication of the full OFT report into the payday loan industry which is seeking to refer the entire industry to the Competition Commission , Stella Creasy MP said;
“This report is a damning indictment of the Government’s failure to act on this market. Despite three years of warnings, under their watch its now clear legal loan sharks are out of control in Britain and our consumer credit market urgently needs meaningful reform. The best way to prevent the problems payday lending causes is to cap the costs of credit, so that people do not get into debt in the first place. So whilst announcements on credit checking and advertising will help limit the damage these loans do, the Government is still ducking the real issues.
For too many consumers, the only people who will lend to them at the moment are these legal loan sharks. There is no competition for their business. That is why a cap on the total cost of borrowing makes more sense than relying on affordability assessments which leave lenders to decide what consumers can pay. The Government is clearly out of touch with the way this industry works and is giving it a free pass to push millions more into debt by not setting out what a is fair price for credit as they do in most other countries.
The OFT must be given clearance to refer this industry to the Competition Commission and the Financial Conduct Authority (FCA) must now act to urgently review the protection of British consumers so that they can benefit from the setting of a fair price for credit – just as we see in many other countries.
It is not the legal loan sharks’ advertising campaigns that are causing the real problems for British families struggling with the cost of living: it is their interest rates. And if this Government will not act to protect consumers now, we know a future Labour Government will.”
The publication of the full report by the OFT is yet just another in a long line of investigations to report about the payday loan industry. Below you can find details of each of the reviews and reports that have been commissioned and published over the past 3 years.
Stella Creasy MP is calling on #sharkstoppers campaigners to urge the Financial Conduct Authority to launch their own urgent research into the implementation of a total cost cap and back the referral of the payday loan industry to the Competition Commission by the OFT. The National Audit Office’s own work shows the failure to address this issue cost UK consumers £450m last year.
- The OFT review into payday lending began in February 2012 – the interim report being released in November – reporting 5 years after the first initial investigations into the industry began.
- In 2005 the number of estimated payday loan customers was 250,000 – by 2011, Policis estimated payday lending was used by 1.3 million individuals – 70% of whom were low-income users.
- By 2011 Key Note estimated the total value of the UK Payday loan market had grown from £735 million in 2007 to £2.34 billion in 2011. Today’s OFT report places that figure now at £3bn.
- Research by R3, the insolvency practitioner in November 2012 showed 5 million adults in the UK are considering taking out a payday loan in the 6 months to May 2013.
- Research shows 60% of people who took out payday loans were using the money to pay for household bills or buying essentialslike food, nappies and petrol.
- In both February 2011 and June 2011, the Government opposed tougher regulation of the high-cost credit sector and refused to support legislation to introduce a cap on the costs of credit.
- The Money Advice Trust earlier this month reported a 94% increase for 2012 in complaints relating to payday loan companies – equating to a 4,000% increase since 2007.
- The Financial Ombudsman Service has reported upholding around 72% of all payday loan complaints in favour of the consumer.
- In February 2011, Stella Creasy MP and 14 other MPs wrote to Ed Davey, the then Minister for Consumer Affairs, demanding the Government take action to protect the poorest consumers in Britain by capping the total cost of credit.
- Research into the application of total cost caps in Japan has shown that the number of borrowers has not reduced – but the average amount of their debt borrowed from lenders has. For more information on total cost caps – contact Damon Gibbons at the Centre for Responsible Credit.
- Stella Creasy MP has been campaigning for caps on the cost of credit since 2010. You can find more details on her campaign here. For more details on the #Sharkstoppers campaign to tackle legal loan sharking in the UK visit Stella Creasy MP’s websitewww.workingforwalthamstow.org.
uk ; or call Jon Chambers on 020 8521 1223.
Responding to figures released by the Money Advice Trust today showing a 4,000% increase in the number of complaints about payday lenders since 2007, Stella Creasy MP said;
“These shocking figures from the Money Advice Trust are yet more proof of the problems now facing millions in our country. It is a shameful reality that many are being pushed into taking out payday loans as they cope with the pressures on their pockets from the rising cost of food, rent and travel. With 20,000 calls from struggling payday loan customers being taken in 2012 these numbers speak for themselves in highlighting the sheer number of British families now suffering at the hands of the legal loan sharks.
Whilst many know just how toxic these loans can be, they find themselves with no alternative but to accept credit with interest rates of 4,500% or more – which half of all borrowers turn out not to be able to repay – with 57% missing a payment. Despite review after review and recommendation after recommendation, these companies are continuing to get away with taking British consumers for a rough ride as the Government has yet to take decisive action to stop this spiral of debt.
The question is just how much more evidence of difficulties the public are facing from these companies must we have before the Government steps into protect British consumers. The rapid growth of this industry is only set to continue with the continuing cost of living crisis in our country. That’s why The OFT must say now what is an acceptable cost of credit as well as ensure all companies do real time credit checks and stop abusing continuous payment authorities so that 2013 does not see even more people getting caught by the legal loan sharks.”
For more details on the #Sharkstoppers campaign to tackle legal loan sharking in the UK speak to Jon Chambers in Stella Creasy MP’s office on 020 8521 1223.