Payday Loan Companies

William Bain Excerpts

Monday 20th January 2014 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

I congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) on securing this important debate and on his continued chairmanship of the Business, Innovation and Skills Committee. I thank my hon. Friend the Member for Sheffield Central (Paul Blomfield) for promoting the charter on payday lending, whose terms I strongly endorse, and I hope that the Government will respond positively and speedily to the important recommendations in our Select Committee’s report on advertising and marketing as well as on access to real-time data on a person’s suitability to a specific loan. The Committee has also called upon the Financial Conduct Authority to extend this practice of access to real-time data, concluding that if it is not properly established by this July, the FCA should make it obligatory for all regulated lenders seeking to provide payday loans or similar financial services products. I hope that the Minister in replying to this debate will say that is precisely what the Government’s approach will be. On roll-over loans, which can see an individual’s effective interest rate on debt escalate rapidly, a limit of one roll-over for each payday loan would prevent much unnecessary hardship for our constituents across the country.

In this debate we have heard a great deal from Members, representing the views of their constituents, on the purpose of markets. The views of my constituents are that where markets do not serve the public interest and serve only the purpose of maximising profits for a very few, we in this House are right to call for them to be reset and rebalanced in order to provide greater fairness for consumers, and in this case greater justice for those on the lowest incomes. Sadly, however, the Government’s recent proposals may be too late for many people in Scotland who are facing escalating charges from using payday lenders. It is clear that the cost of living crisis is biting hard in areas like mine, where 16.5% of all people in work earn less than the living wage, including nearly 3 in 10 of all part-time workers. The mean wage, at just £342 a week, fell in cash terms by nearly 2% in the year to last April, while at the same time prices were rising at a rate of 2.7%, meaning ordinary workers in my constituency were nearly 5% worse off in the year to last April.

As prices have outpaced wages for such an extended period it is no wonder that people have had no choice but to run down their savings or seek recourse to credit to try to maintain what they can of their previous living standards. This means that they are increasingly likely to seek payday lending from a proliferating range of shop-front lenders in Springburn, Dennistoun and other areas in my constituency, but they also seek lending online or increasingly by following up adverts that they have watched on television. My hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) was on to the very important point that the under-employment in our economy, with nearly 1.5 million people trapped in part-time work but seeking further hours, is driving the sense of weak productivity, and the response to the growing crisis people are facing with rising personal debt is a very poor one.

Scotland has the highest volume of payday lending in the UK according to research published by StepChange last November. Last June, some 10.3% of total client debt in Scotland was the result of payday lending, compared with 9.4% in England, 8.4% in Wales and 7% in Northern Ireland. The research also shows huge increases in arrears in priority debt areas such as rent, mortgage, gas and electricity, particularly in the preceding six months. Moreover, payday borrowers in Scotland had the highest value of council tax arrears in 2012—nearly double the UK average at £1,312.

StepChange presented its data in terms of the Scottish Parliament constituency boundaries rather than UK Parliament boundaries, but the picture it painted of the payday lending problem in the two constituencies which make up Glasgow North East is equally depressing. In areas with some of the highest material deprivation in Scotland, we see people falling into severe payday debt interest rate problems, with 37% of people in Maryhill and Springburn having council tax arrears averaging £1,504, and half—50%—of all StepChange clients in Maryhill and Springburn with rent arrears averaging £620. That is the scale of the crisis that is being faced in some of the poorest parts of this land.

To deal with the crisis, the Government should be encouraging the FCA to use the powers it has at its disposal now to implement a total cap on the costs of lending, to ensure that the consumer credit market serves the consumer, rather than the other way round. We also know that our credit unions are experiencing the sharp end of this cost of living crisis. People are using them to save for the things they need—such as a washing machine, when theirs breaks down—when their pay and savings can no longer stretch to them.

Nearly a fifth of the payday lending industry’s profits come from just 5% of loans, which are rolled over four or even more times. Most people would think it fair if those companies faced a higher levy on their profits, so that a much-needed doubling of Government support for our credit union sector could be provided. I urge the Government to do all they can to implement the Select Committee’s findings, but that would simply be a first step to ensuring that, together, across the House, we could lift millions of vulnerable people from the life of misery that deeper levels of personal debt caused by unscrupulous and irresponsible payday lending are putting them into.