Payday Loans

Lord Mitchell Excerpts

Tuesday 12th March 2013 Lords Chamber

Asked By

[Lord Mitchell]

To ask Her Majesty’s Government what assessment they have made of the findings of the Office of Fair Trading’s report on payday loans.

[Lord Popat]

My Lords, the Government are deeply concerned by the OFT’s evidence of irresponsible lending to people who cannot afford it, and by its findings of fundamental problems with the way the payday lending market works. The Government have worked with the regulators, including the OFT, to announce a strong action plan. Tough enforcement today, combined with the move to a new regulatory regime, equipped to deliver robust consumer protections in the future, will tackle concerns in this market.

[Lord Mitchell]

I thank the Minister for that reply. The report from the OFT is indeed a hard-hitting document. It says that payday lenders are guilty of widespread non-compliance with the law—not a few of them but most of them. However, I am left with two concerns. The first is that the Government seem to be indicating that they are reluctant to place caps on the interest rates charged. Is this true? Secondly, are payday lenders now sidestepping regulation by going offshore? What are the Government doing to plug this loophole?

[Lord Popat]

My Lords, that is why last week’s announcement was about the Government and regulators taking strong action together, both to address current problems quickly and to ensure that a more effective regime will be in place next year. A cap is not recommended by the Bristol University report; a cap will reduce access to credit and will mean fewer lenders. As for lenders going offshore, I do not believe that this is the case yet, but if we bring a cap into place there is a good chance that lenders would rather lend from abroad than from this country to avoid the cap regulation.