Reacting to the news that the Government has today accepted the need to cap the costs of credit and promising their own amendment at the 3rd reading of the Financial Services Bill next week, Stella Creasy MP said:

“Today the Government seems to be finally waking up to warnings about the high cost credit industry we have been raising for over two years. Only last week that they continued to argue self regulation was the way forward and refused to act – citing codes of practice and a review of self-regulation planned for 2013. Today’s developments show they now accept they have been on the side of the legal loan sharks for too long and it’s time to speak up for British consumers.

Lord Mitchell’s amendment had widespread support from across the House with Crossbench peers Tanni-Grey Thompson and Baroness Howe backing it as well as the Rt Reverend Justin Welby. Outside parliament #sharkstoppers campaigners have been clear that the Government’s position is untenable because of the damage these companies are doing to so many communities.

I’m cautiously optimistic about the Governments U-turn on this and their commitment to bring forward proposals for caps on the costs of credit. We will wait to see what they propose and will only support measures which benefit consumers directly through impacting the price of credit. Talk of ‘sanctions’ after the damage has been done which require legal action and further codes of practice will not tackle the problems many face now with these companies. Just last week the Office Fair Trading announcing once again that lenders aren’t even following their own guidelines. When 1 in 10 are choosing to payback these loans rather than feed themselves it is only a cap on what customers are charged - rather than a fine on what these companies earn - that will protect British consumers, like those around the world, from legal loan sharks.

With research showing us that nearly 4 million people will take out a payday loan in the next six months alone it is now essential that any new amendment drawn up by the Government holds its cast iron promise that it will give the new financial regulator the power to cap the cost of credit. We also need to push for a real time credit register and more support for affordable credit to give British consumers the same protection from legal loan sharking enjoyed by others around the world. Now that the Government is beginning to read from the same page – there is now no excuse not to act next week and we will hold them to their promises. ”

The Government announced it will draft a new amendment to the Financial Services Bill that it has promised will include the power for the FCA to cap the total cost of credit. Lord Mitchell, as well as co-signatories of the Amendment 114d Baroness Tanni Grey-Thompson, Baroness Howe and Rt Rev Justin Welby, will be given a veto over the Government amendment which is due at the 3rd reading of the Financial Services Bill next week.

To keep up the pressure on the Government and the Lords to keep their promise to include powers to cap the total cost of credit in the new amendment follow @sharkstoppers on Twitter and use #sharkstoppers. For more information contact Jon in Stella Creasy’s office on 020 7219 6980 or jchambers@workingforwalthamstow.org.uk.

Ends.

Notes

1. A survey by Which? in November 2012 shows;

  • Half (48%) of payday loan users have taken out credit that it turned out they couldn’t afford to repay.
  • A third (29%) of payday loan users have taken out credit that they knew they couldn’t repay.
  • In the last 12 months, more than half (57%) of people with payday loans have missed a payment and have incurred charges because of missed or bounced repayments (56%).
  • 43% of payday loan users say it’s too easy to get credit.
  • Almost a third (31%) were hassled by debt collection agencies in the past 12 months.
  • One in ten UK payday customers have incomes of less than £11,100 per year and 46% have incomes of less than £15,500 a year.
  • Research by WHICH? Showed that over 60% of people who took out payday loans were using the money to pay for household bills or buying other essentials like food, nappies and petrol.
  • Payplan, a debt charity company, says that 47% of its clients had six or more payday loans in the last year alone.  Most crucially, 86% of its clients were using the loans for basics—food, transport and the basic costs of everyday living, not luxuries.

2. R3, the insolvency practioner, commissioned research from ComRes published today showing more than 5 million adults are considering taking out a payday loan in the next six months.

  • More than 5 million (5,205,237) GB adults say they are considering taking a payday loan in the next six months. This equates to approximately a 50% increase since this time last year, when it was around 3.5 million individuals.
  • These loans are most likely to appeal to the younger demographic, with more than one in four (26%) of 18-24 year olds likely to seek a payday loan in the next six months. This is well above the national average across all ages of 11%, and 4% of those aged 45 and over.
  • London is the UK region most likely to seek a payday loan in the next months, with 23% of Londoners saying they are likely to take one.
  • In the past six months, 13% of the GB population have prioritised paying back these loans over traditional ‘essentials’,  such as buying food, clothes or paying for gas and electricity. Specifically 7% have prioritised paying back these loans over buying food in the past six months.
  • This figure is higher amongst younger ages groups, 12% of 18-24 year olds or 15% of 25-34 year olds have prioritised paying back a payday loan over buying food in the past six months.

3. Stella Creasy MP has been campaigning for caps on the cost of credit since 2010. You can find more details on her campaign here.

  • For more details on the campaign to tackle legal loan sharking in the UK visit Stella Creasy MP’s website www.workingforwalthamstow.org.uk ; or call 020 8521 1223.


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