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.”
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/
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-
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.