Payday Loans

Lord Mitchell Excerpts

Thursday 20th June 2013 Lords Chamber

[Lord Mitchell]

My Lords, I, too, thank my noble friend Lord Kennedy of Southwark for securing this important debate. Both he and I share a passion for this subject and both of us are determined not to let the issue die. We both see the misery and hopelessness that is caused by payday lending and other forms of loan sharking. We see it on our high streets, on-line and advertised on our London buses.

I would like to recreate the mood that existed in your Lordships’ House last November. I had introduced an amendment to the Financial Services Bill which we had discussed in Committee. On Report, I was fortunate enough to secure as co-sponsors of my amendment the noble Baronesses, Lady Howe of Idlicote and Lady Grey-Thompson. In addition, the then Bishop of Durham, now the most reverend Primate the Archbishop of Canterbury, also sponsored the amendment. By any measure, we had strong support.

Imagine my surprise the day before the debate, just as I was about to enter the Tube at Westminster station, when I received a call from the Treasury Bill team. As noble Lords will readily appreciate, this does not happen too often, especially to mere mortals. The gentleman in question told me that the Government wanted me to withdraw the amendment the next day. I was more than a little surprised. I told him that we were going to defeat the Government, so why should I withdraw. “Because”, he told me, “we know you’re going to win and because the Government have totally reversed their position and now want to support you”. “But”, he went on, “we want to improve the wording and make it much more effective”. I staggered into the station hardly believing what I had heard.

The next day the Government were true to their word. They announced that at Third Reading they would introduce a tougher, more comprehensive amendment. So it was with great joy and a sense that right had prevailed that I withdrew the amendment. The revised amendment was introduced at Third Reading, in the name of the noble Lord, Lord Sassoon, for the Government, and I added my name to it. It went through on the nod, was confirmed in the other place and went on to the statute book.

To capture the mood at that time I would like to recount the words of the noble Lord, Lord Sassoon, who was the Treasury Minister at the Dispatch Box. He said:

“The Government are, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm that vulnerable consumers suffer”.

He continued:

“Our objectives here are the same: they are to ensure that consumers of financial services have access to credit when they need it and at a price they can afford; and to ensure that the regulator is under a clear obligation, and fully empowered, to ensure that consumers are protected”.—[Official Report, 28/11/12; col. 215-16.]

I must emphasise the noble Lord’s words—“at a price they can afford”.

It was a government U-turn, to be sure, and it was of monumental importance; but to their credit, it was one that the Government made with good grace. Very soon, however, the mood music changed, and from statements coming from various government Ministers it became obvious to many of us that the Government’s heart had gone out of the matter. They were retracting their position.

Following the OFT’s report on payday lending companies, I tabled an Oral Question in March asking whether the Government were now reluctant to place caps on interest rates on these loans. The noble Lord, Lord Popat, who is in his place, replied:

“A cap will reduce access to credit and will mean fewer lenders”.—[Official Report, 12/3/13; col. 133.]

The noble Lord carefully avoided the fact that interest rate caps operate successfully in Japan, France, Italy, Germany, Slovakia and in many states in the United States. I do not know how this succession of events appears to noble Lords today but to me they sound like another U-turn. In four months the Government have performed a spectacular double U-turn—such athleticism and so devastating.

Of course, the amendment is now law and the FCA’s powers will become effective next April, but authorities are sensitive to what the Government say, and I am sure that they will see that heat has been taken out of the matter—that the Government no longer seem to care. I therefore want to ask the Minister three very simple questions to start with. Do the Government accept that it is reasonable for London buses to be driving around advertising loans that bear an interest rate of 4,200%? Will the Government state unequivocally that usurious interest rates are morally wrong and should be made illegal? Will the Government state emphatically that they will support the FCA in word and deed in its efforts to curb all the abuses of payday lending?

I would like to add just one more point before I turn to credit unions. In previous years loan sharks were very obvious—muscular men, probably with tattoos on their forearms and oozing menace. Their companion of choice? A pit bull terrier. Their message was crystal clear: if you don’t repay on time, you know what will happen. Today payday lending has become 21st century cool—iPhone apps, slick websites, high street offices with smiley people and flowers on the desks. They can disguise it any way they like; the fact is that they are all loan sharks. Some are legal, some are not, but they all peddle the same usury.

Fortunately, some organisations are choosing to distance themselves from these lenders. I am pleased to say that Bolton Wanderers Football Club no longer wants to be associated with QuickQuid. Unfortunately others have not been so responsible. It is a shame that great clubs like Newcastle United and Blackpool have chosen to be sponsored by Wonga, although individual players—to their credit—have bravely refused to wear its logo. Can it be that individual ethical institutions, such as the Wellcome Trust, are listed as one of Wonga’s shareholders? Following my noble friend Lord Hollick’s statement about Mr Angest, I believe that Mr Adrian Beecroft, also a major shareholder in Wonga, is similarly a major donor to the Conservative Party. I will say no more.

Let us move on to the alternatives. The noble Lord, Lord Kennedy, has been a champion of the credit union movement and has spoken eloquently on this subject a number of times. The combination of the excesses of the recession and the reduction in government benefits has made life doubly painful for many people in our society. More than ever it is necessary to have viable alternatives to legalised loan sharking and payday lending.

In April I saw a vivid example of this. I joined up with the Movement for Change and the Fair Credit Commission and I went to Kilburn. There I walked along the high road along with local residents. Today the street has at least 13 payday lending shops on it. It mirrors the situation in many other parts of the country. Local residents told me about members of their community running up unpayable debts. In one instance, a woman with disabled children told us how she now owed around £3,000. In another, a man with quite obvious serious learning difficulties told us how his unpaid bill with Vodafone had been sent to debt collectors when he was unable to pay. There the payday pattern of interest swung into effect—the amount outstanding rocketed as massive interest rates came into play. There are thousands upon thousands of heart-rending stories like this around the country. Some talk of suicide.

One of the more positive stories was that of a man who, like his father in Dublin, had set up a credit union in Kilburn after arriving there as a teenager. As noble Lords will be aware, the credit union movement in Ireland is particularly strong, with almost half the population using their services. It is a vivid example of their potential to expand here. This is especially needed as historically what credit unions provide reaches beyond just savings and credit to financial advice, encouraging a culture of saving. This week Glasgow Council announced plans to open a credit union account for all children starting secondary school. It is a particularly interesting step in that direction.

This kind of financial advice contrasts sharply with the growing evidence about how payday loan companies are operating. Noble Lords will also be aware of the ministerial statement last week that credit unions are now able to charge a maximum interest rate of 3% a month, a rate of interest that strikes me as just about spot on. It bears a stark comparison with the 38% charged by Wonga and others where there is no legal maximum. I hope that credit unions will be able to offer their services to more people and to run on a more secure financial footing. I also hope that they will be able to take advantage of new technology to improve their provision of low-cost credit to the people who need it. This was recommended in an ABCUL report on credit unions, and by Gillian Guy, of Citizens Advice, who wrote an article in the Financial Times this April which encouraged different providers to use modern technology to deliver financial support to those who need it. This leaves me with a thought on how to go forward—why does your Lordships’ House not set up a committee to investigate this industry?

I would like to ask the Minister some further questions. Will he confirm that the Government will continue to support credit unions, and in so doing carry on the good work of the previous Government? Will the Government reiterate their previous support for capping interest rates, confirm their support for the banning of advertising for these loans, and, finally, give their support to planning rules that would stop our high streets being completely overrun by payday lending companies?