Loan Companies: Interest Rates

Baroness Scott of Needham Market Excerpts

Thursday 17th June 2010 Lords Chamber

Asked By

[Baroness Scott of Needham Market]

To ask Her Majesty’s Government whether they plan to regulate loan companies charging high rates of interest.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, my noble friend’s Question is timely as the Office of Fair Trading has just released the findings from its review of the high-cost credit sector. Many noble Lords will be aware that I am a long-standing campaigner for consumer rights in this area, and I see this review as an opportunity for Government to reflect on these very high rates of interest and consider whether there is a better way for us to approach this market.

[Baroness Scott of Needham Market]

Is my noble friend aware of the growing number of companies, some of which advertise on television, which offer short-term loans at extremely high rates of interest—in one case the APR is 2,689 per cent—plus an arrangement fee? Does she share my concern that a small short-term loan could very quickly turn into a very large lifetime millstone?

[Baroness Wilcox]

My Lords, many of us have seen on television these advertisements by payday loan and instant loan companies offering loans at what seem to be huge rates of interest, running into thousands of per cent. This is a complicated market. The APRs may not be the most suitable method for measuring the cost of these products. For example, borrowing £100 for five days from a company attracts an APR of 3,253 per cent, as the noble Baroness said. That sounds an enormous amount, but in fact the borrower will pay a total of £111—just £11 for borrowing £100—which is less alarming than the APR might suggest. However, that said, we are always looking for ways to try to make credit and lending available to people at all levels in our society. I know that the previous Government and the Government before them struggled with whether to cap lending or let it run free. It has always been the policy of the previous Government, the Conservative Government before them and consumer groups that at least if people have access to some form of credit, they are not being forced on to the black market and loan sharks.