Financial Services (Banking Reform) Bill

Debate between Lord Walney and Cathy Jamieson

Wednesday 11th December 2013 Commons Chamber

[Cathy Jamieson]

That is an important issue that ought to give us more food for thought. In certain circumstances, families might need to borrow on a short-term basis and be perfectly able to pay it back on time without it causing them long-term damage, but they would want to know, before taking out such a loan, that it could damage their credit rating.

I want to return to those who perhaps suffer most from the payday lending sector. Despite changing their tune and bowing to pressure from the Opposition and campaigners at the sharp end, the Government have not gone far enough to protect hard-working families from falling into unmanageable debt. That is why, even at this late stage, we have tabled our amendments. On the first, which relates to data sharing, I am sure the Minister will be aware of the concerns set out by StepChange Debt Charity about how the FCA’s proposed responsible lending rules fail to make payday lenders use real-time credit data in their loan decision making. It says that evidence from its clients suggests that payday lenders often use out-of-date credit data and therefore fail to pick up on whether borrowers have existing payday loans. Understandably, it then makes the point that lenders cannot be sure they are lending responsibly.

As we have heard repeatedly, multiple payday loans from different lenders are a major cause of debt problems. Two thirds of StepChange clients reporting financial difficulties with payday loans have been granted overlapping payday loans from different lenders. It also argues that the regulator’s responsible lending rules transpose Office of Fair Trading guidance into binding rules but continue to allow payday lenders to make loans without using that up-to-date information about borrowers’ existing financial commitments. That is obviously causing particularly severe problems for those who get into difficulty with multiple payday loans.

We should listen to what StepChange tells us about the growing problem of people being lent one unaffordable loan after another as they struggle to pay off the loans falling due. It tells us that more than 30,000 people contacted it for help with payday loans in the first six months of 2013—almost double the figure for the previous year. The average amount owed on payday loans by its clients has risen to more than £1,600, creating severe financial difficulties for those clients. In some circumstances, even a whole month’s income would not cover the repayments. It also tells us that a typical client with payday loans now has three payday loan debts and that one in five have five or more with different lenders.

Therefore, it is clear that different payday lenders granting overlapping loans is a major cause of payday debt dependency and that current procedures are not working. It is thus sensible for the FCA to require payday lenders to make use of up-to-date credit information on a borrower’s short-term commitments when they decide whether to issue or extend a loan. Payday lenders have long claimed to be working towards a system of sharing credit data in real time. They have been talking about it for more than two years, but there has been no solution.

[John Woodcock]

My hon. Friend is making a very good speech. We have heard the Minister say at the Dispatch Box that the Government are now committed to tackling this issue, whether belatedly or not. This is such a good opportunity to show that we can all be as one in the House and to take action where there is still clearly a problem, as she is so amply setting out.

[Cathy Jamieson]

I thank my hon. Friend for his kind words about my comments. I am simply putting forward the views brought to us by the people at the sharp end who have experienced the worst problems from payday lending. I pay tribute to those people again for doing so. I agree that it would be wonderful if we could secure some further consensus on these problems and send a clear message to the industry, particularly on advertising. The advertising spend of the top five payday lending brands apparently stands at about £36 million a year. That seems to suggest that they are investing heavily in attracting new borrowers at the same time as being not quite as willing to invest in responsible lending.