Payday Loans

Baroness Wilcox Excerpts

Thursday 20th June 2013 Lords Chamber

[Baroness Wilcox]

My Lords, 23 years ago, in 1990, I chaired the National Consumer Council. We brought out a book called, Credit and Debt. With the permission of the House, I will read one or two lines from its foreword, which states:

“People have always needed or wanted things that they cannot immediately afford. And there have always been people on hand with the money to lend to them—at a cost”.

The book added that in the previous few years:

“Consumers enormously increased their use of credit. New types of lending grew quickly, older ones declined ... Most people have been able to make good use of these new opportunities, but there has, too, been a worrying increase, for whatever reason, in the number of credit casualties … The change in economic conditions … has reminded us that credit is a risky business. It is risky for lenders, of course, but it is risky for borrowers, too. Taking on credit means mortgaging your future in a large or small way. And none of us can be certain about the future. Today’s rising casualty rate raises anxieties about the greater potential for damage in an expanded market … Many people are still forced by necessity to borrow—sometimes on contracts they do not understand, and at rates that, realistically, they may not be able to afford … Information and education are important keys. They are at the heart of a truly competitive and healthy credit market”.

I read that and some of the rest of the book just to remind myself that I seem to stand up quite often in this House when the noble Lord, Lord Kennedy, stands up, and we are usually talking about credit unions. Some of the ideas that he has mentioned made me think that there is hope and that there may be new ways for us to go in.

However, the credit unions are all about saving, being prudent and putting something aside. The sort of lending that we are talking about here is very often for people who are borrowing in a panic, borrowing instantly, and want to go straight into the high street. We have seen more and more of such lending. Credit unions might not solve this issue, but some of the other suggestions are certainly worth listening to.

We have a Government committed to curbing unsustainable lending, and the report commissioned from Bristol University and the OFT’s final report on payday compliance demonstrated clearly that the high-cost credit market, particularly the payday lending market, is not functioning in the consumer’s interest. The Government have set out how they and regulators together will tackle the concerns in the payday lending market. The OFT now, and the FCA from April 2014, will clamp down on irresponsible practices, and in some cases blatant non-compliance, by lenders. The OFT is consulting on a provisional decision to refer the payday lending market to the Competition Commission. The Government will begin immediate work with industry and regulators to clamp down on the advertising of payday loans, and they are strongly pressing for the industry to improve compliance with payday lending codes. The FSA has committed to considering whether there are gaps in the regulation of payday lending that need to be addressed by the FCA from April 2014.

All this is good news for the consumer and consumer groups such as the National Consumer Federation, Consumer Focus, Citizens Advice and Which?. All are calling for better affordability checks, more transparent information, preventing lenders from levying excessive charges on borrowers in financial difficulty, and other measures. I and many noble Lords have received e-mails and letters from new lenders with many suggestions for alternative ways of lending.

Credit is therefore a popular consumer product. Most people in Great Britain handle it well, and I was reassured to read the foreword written by the Minister for Consumer Affairs, Jo Swinson, in the Government’s response to the Bristol University report, who stated:

“The Government does not believe that a cap on the total cost of credit would be the best solution now to the problems that have been identified by the Bristol report and the OFT payday compliance review”.

However, she added that a “cap might be appropriate” at some time. Here is the point of my concern and my reason for speaking today.

I hope that we can avoid capping at all costs. Germany and France cap at about 25% and they have a very narrow lending market. My worry, and that of consumer groups, the previous Government and this Government, is that capping will restrict access to the credit market, making it unavailable to the poorest and most vulnerable in our country: the disadvantaged consumers. They would undoubtedly lose access to the legal market and be forced into the hands of loan sharks and illegal lenders whose terms and methods cannot be easily controlled or monitored. All Governments and consumer groups are concerned that when it went wrong, the borrowers would be afraid to seek help from the very organisations that are set up to assist people taking panic-borrowing and to sort out their debts. They would find it hard to find these people until it was too late.

I was brought into this House to speak for the consumer, particularly for the disadvantaged consumer, and I hope I am doing that today. After all, a consumer is you and me; a consumer is somebody who buys or uses goods or services, whether publicly or privately provided; a consumer is empowered by having choice, by having access to that choice, by having the right information on which to make that choice and by having safety, equity and redress. Taking away access to a market—in this case, capping the lending market—is giving a disadvantaged consumer no choice other than the black market. As I have already said, capping would mean that the most vulnerable could not make a choice, thus stopping them getting equity, redress and help.

Achieving access to credit for all in a free, well regulated and open market should continue to be our goal. Government will regulate the market better. Schools, churches, families and lenders should, and if encouraged will, all play their part. However, 23 years on, I still believe that education and information are at the heart of a truly competitive and healthy credit market.