Payday Loan Companies

Adrian Bailey Excerpts

Monday 20th January 2014 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I beg to move,

That this House has considered payday loan companies.

I thank the Backbench Business Committee for providing time for a debate on an issue which has been gathering importance and significance, and which was the subject of a second Select Committee report fairly recently. The report was published just before Christmas.

Before I deal with the substance of the report’s recommendations, let me thank my colleagues on the Business, Innovation and Skills Committee for their assiduous work and their commitment to promoting the recommendations, which went far beyond just supporting them in the Committee. While I recognise that there has been a huge body of support for the recommendations on both sides of the House, and that people have campaigned for them for a long time, I feel that I should mention in particular my hon. Friend the Member for Sheffield Central (Paul Blomfield), who has fought a long, sustained and robust battle to secure the recommendations, and will continue to do so until he sees them enshrined in appropriate regulation.

We wanted the issue to be debated today because this is a particularly strategic time for such a debate to take place. Historically, the regulation of payday lenders has been the responsibility of the Office of Fair Trading, but in April that responsibility will be taken over by the Financial Conduct Authority. The FCA has conducted a consultation on the rules that it is proposing, and we felt that it was timely for the Select Committee’s recommendations to be given an even more public airing before the authority published its conclusions.

The impact of the payday lending industry has been a subject of growing concern for a long time. I could probably spend 20 minutes giving the House statistics about the impact that it has had on particular sections of the public, but I shall try to confine myself to one or two particularly relevant ones.

A personal debt survey that was conducted in December last year found that 5% of adults admitted to having taken out payday loans. An even more significant finding was that 6% said they would consider taking out such a loan in the next six months. The turnover of the market increased from £900 million in 2008-09 to £2.26 billion in 2011-12, and all the indications are that the more recent figures will show an even greater increase. According to StepChange, an organisation that provides advice on debt, 36,000 people approached it for advice in 2012, and 30,000 people did so during the first six months of 2013. That means that what was a very large number of people in the first place has almost doubled over the past year.

The payday lending industry gives rise to many reasons for concern, but given the time that is available to me this evening, I shall not try to deal with all of them.

[Sir Tony Baldry (Banbury) (Con)]

The hon. Gentleman is right to focus on the need for us to review the existing regulations. He is also right to draw attention to the problems involved in payday lending. As he will know, the Archbishop of Canterbury is keen for us to try to compete payday lenders out of existence. I hope that he and the House will be pleased to learn that the Archbishop has appointed Sir Hector Sants to lead a taskforce that will try to establish what more can be done to improve competition and the alternative market. Of course, that will not happen overnight.

[Mr Bailey]

I broadly support that course of action. I think that there is a sector of the market to which payday lenders can be relevant, but that sector must be closely regulated and transparent, and there must be a process that prevents lenders from adding to the problems of those who apply to them for loans. I shall say more about that, and about the important issue of competition.

I intend to talk about just one significant part of the industry, but let me first point out that much of the publicity about the industry has focused on the interest rate charged by payday lenders and the associated costs. That is obviously crucial in terms of the impact that it has on the people who take out the loans, but I think that we should view the issue much more broadly. We should think about the way in which payday lenders promote themselves, and the way in which they lure people into taking out loans. We should think about the processes in which they engage, which do not ensure that the loans given to people are appropriate to their personal needs, as well as how much they charge and how much they make from those charges. The Select Committee’s recommendations cover all those issues.

I think that the main problem—which was reflected in the 2013 OFT review of payday websites—is that payday lenders who are in competition with each other do not operate on a competitive price-offering basis; they operate on the basis of speed of access to such loans and lack of accountability. Anybody who goes on a payday loan site will see that the key aspects of every company advert are speed of access and lack of accountability. The OFT review made a substantial impact. As a result of the investigation, 19 of the 50 operators left the market, three had their licences revoked and three surrendered them. That alone shows the appalling misrepresentation that was going on at that point, but should anybody believe that that problem is over as a result of that action, even a cursory glance at their advertising will show that it is not. There are still many areas of enormous concern, and I know other Members will want to comment on them.

I want to concentrate on the advertising element. I have mentioned that the emphasis is on speed, ease of reading and ease of application. I took one advert at random. It says, “Great news!” and

“We have 7 lenders who can offer you £1,000—paid online today!..Complete our 1-minute verification form.”

For an industry that claims to be cleaning up its act and not to be lending to those who cannot afford to pay back, to offer to verify the appropriateness of a loan to somebody in a one-minute online process defies all credibility.

I looked at another advert that had a beautifully seductive cheery pink pig. I could not help but marvel at how the piggy-bank, a symbol over the decades of thrift and financial responsibility, should be misused in such a way to promote what is perhaps some of the most irresponsible lending, but that is how these companies advertise on their websites.

We found the television advertising to be the most concerning of all, however. Ofcom carried out research on this. In 2008 there were 12 million impacts, and in 2012 there were 7.56 billion impacts, with 152 loan adverts per viewer per year. Most seriously of all, children aged between four and 15 saw 3 million adverts, an average of 70 per child per year.

The Committee recommends that all advertising targeted at children should be banned. I acknowledge that there are problems around this, because the amount of advertising aired directly in children’s programmes is relatively small. However, there is an enormous amount shown during programmes that children are likely to watch. These adverts are largely focused on daytime and early-evening television, which is far more likely to be seen by children.

I shall now quote an e-mail I received from a teacher. She said:

“I asked the children what they could do if there was something they wanted to buy and didn’t have the money for yet. Almost all the hands went up (Only one child said they should save up) and I was given the names of several payday loan companies…They said that it was on TV and then most of them sang the song in the advert.”

Certainly the cartoon style of some of the adverts can only be interpreted as being geared for children.

The teacher went on to say:

“The advertising seems to have ‘normalised’ payday loans for the children as a way to buy things instead of saving and I feel that by the time these children are adults they won’t think twice about taking out a payday loan to pay for it. I spoke to them about interest charges and none of them had realised that these companies were anything other than a benign service helping people to pay for things.”

This ties in with the research done by Martin Lewis. He stated in his evidence to the Committee that he thought that in effect these companies were grooming children. Those are strong words, but the evidence so far is that the number of children seeing these adverts and the impact they are having on them is such that we cannot stand aside and disregard that. I understand the broader issues about regulating advertisements, but I feel there is now a huge body of evidence to demonstrate that the Advertising Standards Authority should be working with the financial services industry and others to ensure that there is a code of practice so that children are not subjected to such a level of pressure.

I cannot believe all this is coincidental. Parents respond to pester-power from their children, and if those children believe it is so easy to obtain money, the pressures that adults may feel are multiplied many times. That is reinforced by constant demands from their children to spend money they cannot afford.

I have spoken about just one element of this issue. There are many others that are equally important and significant and equally damaging to people’s personal financial situations. I know many colleagues will want to highlight those and I will not try to pre-empt them. I will instead conclude my remarks at this point, having highlighted that particular recommendation.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Bailey]

I thank all Members who participated in this debate, particularly members of my Committee. An enormous number of contributions from across the House have brought to this Chamber the detail of Members’ experience and expertise, and in some cases some imaginative solutions.

There is clearly a serious problem, and the proposed measures on capping credit and interest rates are very welcome but will not in themselves be sufficient to deal with the scale of it. The issues raised included roll-overs, continuous payment authorities, affordability tests, real-time data sharing, free debt advice services, financial education, and advertising. Dealing with those is all part and parcel of a comprehensive solution to the problem. I recognise that the FCA does not have all the powers it needs to do so, and that requires Government to look at other means of addressing the issues. My hon. Friend the Member for Glasgow North (Ann McKechin) made a pertinent comment when she said that regulation is behind the curve. That is true. We must now ensure that the Government and Parliament are ahead of the curve in order that the appropriate measures are put in place.

Question put and agreed to.

Resolved,

That this House has considered payday loan companies.