Enterprise Bill [HL]
Debate between Lord Mitchell and Lord Hodgson of Astley Abbotts
Lord Mitchell (Lab)
My Lords, I speak in support of Amendment 9 in this group. Yet again I return to the subject of payday lending. Over the past three years, noble Lords have secured some pretty impressive legislative reforms. As a result of amendments to previous Bills, the FCA is now in power to regulate the terms and conditions under which payday loans are made. The rate of interest is now regulated but the most significant change is that, under all circumstances, the total repayment of any loan is restricted to double the value of the loan itself. This is a real result, since those charming people in the payday lending industry had been adept in slipping in all sorts of unexpected and sneaky charges.
It is interesting that the perils that the payday lending companies themselves and their lobbyists forecast failed to materialise. It really was a change for good. I pay tribute to the FCA for getting on top of this abuse and I read on today’s BBC website that Dollar Financial UK has admitted malpractice and will refund £15.5 million to 147,000 customers. So it really is working. This morning I checked on Wonga’s website and saw that the APR on its loans is 1,500%—scandalous, it is true, but dramatically less than the mere 6,000% it had previously been charging.
Today’s amendment in my name is designed to give the commissioner the powers to advise small businesses in respect of payday loans and, by implication, all the short-term, high-interest category of loans. Clearly, many small businesses are often desperate for cash to meet unexpected costs. Many of them are sole traders or employ no more than a handful of people. Banks, as we know, tend to be unhelpful and for many businesses payday lending is a short-term option. We simply want the commissioner to advise the small business sector of the potential pitfalls of this type of borrowing.
I also want to address the area of EIS—the enterprise investment scheme. I state my interest that I am chairman of a small company, Instant Impact Ltd, which started four years ago with two young men based in Starbucks drinking coffee and it has now expanded to £1 million turnover. It is involved in graduate recruitment. We, too, have just introduced an enterprise investment scheme. There is also the seed enterprise investment scheme, introduced by this Government. Both schemes work pretty well. The Labour Government introduced the EIS but SEIS was introduced by the last Government and it works really well. In the area in which I am very involved—the tech sector—SEIS is absolutely crucial.
I have noticed that surprisingly few young businesspeople, older businesspeople, advisers, accountants and lawyers are aware of some of these schemes. That surprises me and I advise that the commissioner should have the power to influence the knowledge of these schemes and others that might come throughout the business community. I beg to move.
Lord Hodgson of Astley Abbotts
My Lords, I certainly recognise and applaud the work that the noble Lord, Lord Mitchell, has done in exposing and correcting some of the more egregious aspects of the short-term loan lending industry. I add a word of caution on the proposals.
The short-term loan sector is like an iceberg and the noble Lord fairly and properly sought to regulate the visible part of the iceberg. He referred to the FCA, the work going on, and the effect this work has had. I applaud that. However, it is the invisible part of the industry that is really nasty. That continues to exist. The danger is that if we make it too difficult for firms in this visible part of the iceberg to operate with full disclosure it is to the invisible part that people will turn because there will always be a demand for short-term cash for one reason or another.
Given what he said about the FCA and financial regulation, I am not convinced that it is part of the Small Business Commissioner’s role to give guidance on payday loan rates and their appropriateness as that is a very difficult and problematic concept. That is something for the financial regulator. All I ask is that we avoid the risk of demonising these firms. However unattractive the noble Lord may find the interest rates charged and everything else, we should ensure that everything is above board and is done clearly and in the open. We should avoid demonising these firms while allowing the hidden part of the iceberg to continue to exist. My goodness me, that really is baseball-bat territory and not the sort of thing that any of us wish to see increase. We wish to see it eliminated. I am concerned that putting this sort of further pressure on firms that operate in compliance with the law will encourage the growth of those who operate outside the law.