Payday Loan Companies

Paul Blomfield Excerpts

Monday 20th January 2014 Commons Chamber

[Paul Blomfield (Sheffield Central) (Lab)]

On this occasion, it is a pleasure to be called at the end of the debate, Mr Speaker, because it provides me with an opportunity to reflect on the contributions, where two things have stood out. The first is the deep concern on the issue and the positive points that have been made about the Financial Conduct Authority and its proposals. The second is the unanimity across the House that the FCA is moving in the right direction, but not going far enough. After it launched its proposals in October, Members from every party represented in this House came together to launch the “Charter to Stop the Payday Loan Rip-off”, not only outlining a holistic intervention on how we could regulate the sector, but critiquing the FCA proposals. That has subsequently been backed by civil organisations ranging from Unite to the Women’s Institute, and by councils of all political persuasions, as the hon. Member for North Swindon (Justin Tomlinson) pointed out. It is also supported by every major debt advice and consumer organisation.

Many Members have cited shocking statistics and research to back the case for further action, but I thought I would share the case of one Sheffield woman and ask how she would be helped by the FCA proposals. She has asked to be kept anonymous so let us call her Susan, and her case is all too typical. She was struggling to keep up with bills and to make ends meet, she took out a payday loan to help tide her over but still found that she was short at the end of the month. By rolling over the initial loan and taking out new ones to pay off that debt, she found herself in a spiral of increasing debt, with three payday loans, costly default fees and mounting interest.

My first question is: would the FCA proposals on advertising have protected Susan? She took out that payday loan because of the advertising she had seen. Too often, such advertising makes borrowing look easy and stress free. The hon. Member for Gosport (Caroline Dinenage) made the point that the FCA is focusing on tackling misleading advertising, but we should be focusing on tackling irresponsible advertising. We have all seen “Wonga: the movie”, which illustrates the problem of advertising that makes loans seem aspirational and life-improving, whereas payday loans are in fact the worst form of credit anybody could take out. So Susan would have been failed by the proposals on advertising.

My second question is: what about roll-overs? Once Susan had taken out her first payday loan, why was she encouraged to keep rolling it over? How could she have taken out two further payday loans when she was clearly having difficulty repaying the first one? The FCA’s proposal to limit the number of roll-overs to two is a step in the right direction, but the Select Committee is right to say that there should be a limit of one. Is the need to roll over more than once not a sign that the borrower is in trouble?

Similarly, we must look at repackaging loans and the problem of multiple loans. On the issue of multiple loans that pushed Susan into the spiral of debt, I recall that in a debate on 11 December on the Financial Services (Banking Reform) Act 2013, there was great agreement across the House on the need for real-time data to prevent irresponsible lending. As my hon. Friend the Member for Makerfield (Yvonne Fovargue) pointed out, Callcredit, with great support from Wonga and the Consumer Finance Association, announced the establishment of some data sharing. However, that scheme will not stop irresponsible multiple lending.

Let us consider these questions. Are all lenders signed up to this data sharing? If not, and Susan went to one that was not, they would not know that she was struggling to pay back her initial loan. Will the scheme identify lenders who are breaching FCA rules by, for example, rolling over loans too many times, and report them to the FCA? If not, Susan’s loans could be rolled over, just as now, with the FCA left to play catch-up once it has received its six-monthly data report from lenders. Will it establish a benchmark of affordability and assess whether that is being met by lenders? If it is not, will it report those lenders to the FCA? If it does not do that, Susan will still be trapped by unaffordable loans. The answer to each of those questions is no, so we still need the FCA to establish a database, require all lenders to use it, and use the data to enforce its rules. The case for that database is as strong now as it ever was, and I hope that the Minister and the FCA will pay heed to it.

There is also the issue of the continuous payment authorities. I welcome the fact that the FCA is suggesting that CPA administration be limited to two unsuccessful attempts, but it does not go far enough. It still provides lenders with the opportunity for a strategic intervention into somebody’s account to drain them of all their resources at a critical point in the month when they need that money for rent and other vital payments.

The code of practice that the sector has established, to which my hon. Friend the Member for Makerfield referred, suggests that lenders should provide three days’ notice of using a CPA, and yet, assessment of the sector by Citizens Advice suggested that 60% were not complying with their own good practice. The three days’ notice should be accompanied by a reminder of the right to cancel, which has been deliberately obscured in the case of many people who have got into difficulties with CPAs. I agree with the hon. Member for Worcester (Mr Walker)—I will be supporting him tomorrow morning—that we should use the opportunity of the new levy on payday lenders to increase the overall resource that is available to support free and independent debt advice, which has grown in response to the growth of the payday lending sector.

[Mike Crockart]

The hon. Gentleman has talked about being able to cancel the CPAs. He said that only 23% of lenders were explaining the situation, but the figure for those lenders explaining the ability to cancel is even worse, standing at only 5%. Does he agree that that is absolutely abysmal?

[Paul Blomfield]

I agree with the hon. Gentleman. The level at which the good practice surrounding the administration of CPAs has been obscured by lenders has caused enormous difficulties for many people. It underlines why we need a clear regulatory framework for the use of CPAs, in which any lender participating in the sector must comply.

My hon. Friend the Member for Glasgow North (Ann McKechin) was right when she said that, although the FCA is moving in the right direction, it is currently behind the curve. I hope that it listens to the debate tonight, gets itself ahead of the curve and listens to the voice of Parliament.