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.