Payday Loans: Debt Collection

Tuesday 1st July 2014 Lords Chamber

Question

15:01

Asked by

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what action they propose to take in respect of Wonga.com and other financial sector companies which have employed misleading debt collection practices.

[Lord Kennedy of Southwark (Lab)]

I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a director of London Mutual Credit Union.

[Lord Newby (LD)]

My Lords, the Government are determined that abuse in the payday lending market should be tackled wherever it occurs. That is why we gave the Financial Conduct Authority strong powers to regulate the payday lending industry and legislated to require the FCA to introduce a cap on the cost of payday loans. The FCA asked Wonga to make redress to customers, which Wonga has agreed to. Wonga will pay compensation totalling more than £2.6 million to around 45,000 customers.

[Lord Kennedy of Southwark]

Will the Minister join me today in condemning the disgusting activities of Wonga.com? Will he arrange for me, faith groups and other campaigners to meet a Treasury Minister to look at the idea of putting the fines imposed on companies in the financial services sector into a separate fund and using them to support the credit union movement, financial charities that work with adults and children, and similar organisations? Enabling people to make better-informed financial choices and to understand their options is a much better way forward.

[Lord Newby]

My Lords, I agree with the noble Lord on his first point and I am happy to arrange a meeting. I remind the House that the Government are putting £38 million into the credit union expansion plan and we strongly support the expansion of credit unions.

[Lord Elystan-Morgan (CB)]

The watchdog’s report shows that deceit on a massive scale has been perpetrated, but there are two questions that I wish to ask the Minister. First, with regard to the possible criminality involved, is it possible, if not likely, that offences have been committed under Sections 1 and 2 of the Fraud Act 2006 and Section 26—the blackmail section—of the Theft Act 1968? Secondly, is it not the case that such bodies hold statutory licences? Should there not be a rigorous examination to see whether they are fit to hold such licences?

[Lord Newby]

My Lords, the noble Lord is right that there is a question over whether Wonga in this case might have infringed both the Fraud Act and the Theft Act. The Law Society has asked the Solicitors Regulation Authority to investigate whether Wonga might also have breached Section 21 of the Solicitors Act 1974 and the Legal Services Act 2007. There is plenty of scope for legal action. On the fit-and-proper test, payday loan companies have been regulated by the FCA only since April. A full fit-and-proper test of each company will be undertaken in the autumn.

[Lord Razzall (LD)]

My Lords, is the Minister aware that the debt collection practice with which we are concerned has also been introduced by the Student Loans Company? Will he confirm that no other government agency follows the same practice and agree that it is difficult to complain about Wonga when a government agency is involved in similar activities?

[Lord Newby]

My Lords, there have been recent reports about the Student Loans Company. My right honourable friend David Willetts is in the process of establishing the facts of the practice. The offending letters that the SLC sent out are no longer being sent. Certainly, if it is found that the SLC or any other arm of government has adopted unsatisfactory practices, appropriate and firm action will be taken.

[Lord McFall of Alcluith (Lab)]

My Lords, it is important to note that no fine whatever has been imposed on Wonga. It has been asked only to redress customers at a rate of 8% interest, compared with the 5,853% that it charged its distressed customers. Despite the potential criminality in at least four areas here, Wonga has been allowed to continue as though nothing has happened, portraying itself as the good guy in a bad industry when it is the bad guy in what should be a good industry.

[Lord Newby]

My Lords, I think Wonga is finding it increasingly difficult to portray itself as the good guy. That has been demonstrated by this episode. The key thing to point out is that the action of the FCA has resulted in prompt redress and that 45,000 consumers will be getting a payment from Wonga. Until the FCA had the powers that it assumed in April, there was no provision under the previous regime for the OFT to secure redress for customers in that way. If, under the old regime, the OFT had initiated a criminal process, it is quite likely that it would have taken the best part of three years to reach a conclusion; whereas, under this process, consumers have got money back from Wonga very quickly.

[Baroness Wheatcroft (Con)]

My Lords, we hear much in this Chamber about how credit unions are a preferable alternative to the Sue, Grabbit and Run tactics of some of the payday loan companies, but many people working in Parliament would probably benefit from the presence of a credit union. Has my noble friend given any consideration to the establishment of a parliamentary credit union?

[Lord Newby]

My Lords, I think there may be one but, sad to say, I have not become a member of it. I will write to my noble friend explaining how she might join and put the letter in the Library of the House so that other Members may do the same.

[Lord Alton of Liverpool (CB)]

My Lords, will the Minister confirm that personal debt in Britain now stands at a staggering £1.4 trillion, and that in one recent year, payday loans were advertised in more than 400,000 spots on television? This included advertising, some of it by Wonga, that was targeted at young people and used puppets. Surely it cannot be in our national interest to promote indebtedness on that scale and to have a new rising generation encouraged to take out personal debts as well.

[Lord Newby]

My Lords, I agree with that, but the fact that we are now regulating the industry in a way that has never been done before is likely to have a significant impact on both the number of firms—firms are exiting the sector very quickly at the moment—and public perception of the industry. If we go back a year or two, the Wongas of this world were seen to be soft and cuddly institutions; nobody believes that any more.