John McFall on another issue that needs to be resolved with payday lending
Later today, beyond the well trailed debate and likely vote on my colleague Parry Mitchell’s ‘payday loans’ amendment, I am promoting a new clause in the Financial Services Bill that would protect borrowers from the misuse of Continuous Payment Authorities by pay day lenders.
These are harsh times for many working families. They are under pressure from rising fuel and food costs and are living in fear at the prospect of job loss and insecurity. They know how hard it is to stretch a wage from payday to payday. Many of them use payday lenders to bridge the gap in their finances.
Continuous Payment Authorities – or CPAs – are set up by using a debit or credit card which allows lenders to withdraw funds from a debtor’s bank account. Various reports suggest that customers are not aware of their right to withdraw from CPA schemes and Consumer Focus and the OFT have done good work in highlighting the problems.
Last week the OFT issued guidance to payday lenders about how CPAs are used. The OFT report contains a catalogue of potential misuse as examples of ‘what not to do’. These include debiting a higher or lower amount than agreed, using the CPA without informed consent from the debtor and using it in an unreasonable or excessive manner.
Guidance is all very well but the law needs to send a clear message to those who abuse their powers as creditors.
My new clause (detailed here at 116ZB) is designed to ensure that debtors are informed about their rights and that only the debtor can vary or cancel a CPA. We ought to legislate to redress the balance in the debtor/creditor relationship and my new clause is designed to do just that. We ought also to legislate to protector debtors in straightened times. We abolished imprisonment for debt by the Debtors Act of 1860. However, debt itself can create a prison and the misuse of power by creditors can be as hard a punishment as being jailed for debt.
It is time for the balance of power between customer and company to change – and that must be done by placing power and firmly in the customer’s favour.
Lord John McFall of Alcluith is a member of the Joint Parliamentary Commission on Banking Standards and a backbench Labour Peer in the Lords
Published 28th November 2012