Payday Loan Companies

Debate between Naomi Long and Nadhim Zahawi

Monday 20th January 2014 Commons Chamber

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

I am sure that we would all much rather that people did not have to resort to payday loans to make ends meet. My hon. Friend the Member for Dover (Charlie Elphicke) cited the behaviour of the banks in respect of overdrafts as a possible reason for the rise of the industry, but I cannot help but think it correlates with the last Government’s economic policy, whereby we saw an explosion in household debt, the decoupling of median pay from GDP and a recession that wiped out 7.2% of our national income. We have to deal with the world as we find it, not as we would like it to be. If desperate people do need credit at short notice, I would much prefer they got it from legitimate companies which can be monitored and regulated, than through illegal means. My hon. Friend cited pieces of research that say that people will not go to loan sharks, but a significant minority do end up going to loan sharks, who would do anything to get their money back.

[Naomi Long (Belfast East) (Alliance)]

One concern in my constituency is that paramilitary organisations are often the loan sharks and, although the consequences that flow from a payday lender are of concern, the consequences of defaulting on such a loan are serious in the extreme.

[Nadhim Zahawi]

The hon. Lady makes a very powerful point. I have seen evidence of conversations between a young lady and a loan shark in a coffee shop where she was having to agree to lie to her husband to try to get some more money, otherwise her limbs would be damaged.

The question is how we regulate the sector. As with any financial market, we need a system of clear rules backed up by tough enforcement. A good regulator needs to have blood on its sword, and I hope that the FCA will use its enforcement powers to drive the most egregious players out of the market. I am on record as calling the behaviour of some of these companies rapacious.

Unlike the Office of Fair Trading, the FCA will have the power to cap the total cost of credit, which is welcome news, but I want to see the FCA go further than the terms of its consultation in two areas. First, it should mandate the use of real-time data sharing as a condition of being able to trade in this market. The hon. Member for Glasgow North (Ann McKechin) made that point eloquently. It is vital that we make it harder for consumers to take out multiple loans from different companies. Such borrowing can quickly spiral out of control, trapping people in huge debt. As we know from macro-economic policy, we cannot borrow our way out of a debt crisis.