Parry Mitchell on stopping loan sharks again taking advantage of people at Christmas time
On Monday afternoon in the House of Lords, the Banking Reform Bill will get its Third Reading – the stage, normally, when major bills are tidied up ready to be brought into law. This time however, the government has introduced a new amendment entirely out of the blue, and subject to just the one change, it is an amendment that we on the Opposition benches will warmly welcome.
For nearly four years I have been working on a campaign to regulate payday lending. Of course I knew about loan sharks and the terrible misery they cause, but I hadn’t really focussed on the way this industry was developing. When I did I was aghast, for here was a business which was enticing people into debt and playing on their vulnerabilities. Any way you cut it, any way you measured it, 6,000% interest was beyond morality and decency. I felt it had to be regulated and that it was my calling to do so in Parliament.
Today, payday lending exceeds more than £2bn per annum; and at a time when Ministers are preaching against debt, here they were encouraging it and allowing the perpetrators to be largely unregulated.
My business background had been in the leasing of sophisticated IT equipment to sophisticated users. My training meant that I not only understood compound interest and finance, but also that I understood IT. The payday lenders could pull the wool over many people’s eyes, but never mine.
Last year, we managed to persuade the government to include an amendment to the Financial Services Bill (now an Act) that gave the Financial Conduct Authority the power to regulate all aspects of payday lending and in particular the capping of interest rates. We gave them the teeth, but sadly they did not bite. Indeed, they stated very clearly that they were not persuaded that these rates should be capped. One could only wonder that if 6,000% did not move them, would 10,000%, or 100,000%?
It is little known that the payday lending companies are getting financial support from the City. I had read that Barclays had lent Wonga over £250 million, but when I investigated further I found that the number was very much higher. If you consider what the clearers in total and the other financial institutions lend to all the payday lending companies the number we are talking many billions of pounds. The City purports to have washed its hands of this grubby sector, but in truth they participate, using payday lenders as surrogates.
George Osborne’s recent announcement that the government will legislate to cap interest rates on short term loans came as a total surprise – not just to me, but his own civil servants as well. The Chancellor, the Prime Minister and the Business Secretary had all repeated many times over that they did not believe in an interest rate cap. But they are to be applauded on their u-turn – even if their rationale for doing so remains unclear. Labour had taken the high ground when Ed Miliband said we would cap interest rates, so perhaps Mr Osborne saw some polling that suggested we were running ahead with this popular move? Either way, plagiarism is a sincere form of flattery.
The government’s amendment on Monday will tell the FCA that it no longer has the option to cap interest rates, but instead state that it is obliged to do so. We only have one reservation, and to address that issue have laid down our own challenge.
Ministers say they want these changes to take effect by 2 January 2015, we say make it 1 October 2014. And why are we raising an amendment just for 90 days? Because payday lending companies really make hay during the festive season, and we want 2013 to be the last opportunity for these companies to rip-off those who struggle to make ends meet at Christmas time.
Lord Parry Mitchell is a backbench Labour Peer and former Shadow Business Minister
Published 8th December 2013