Parry Mitchell on tackling the scourge of payday lenders on our high streets
Last week, I was given a tour of Kilburn High Road by the Kilburn Campaign for Fair Credit and Movement for Change. Afterwards, local councillors and I listened to testimony from local residents about the effect that the 13 – yes, 13 – payday lending shops on this one road are having on the local community. It was a timely reminder about the scale of the problem at a time when the government appears to be watering down its own commitment to cap the total cost of payday loans.
I heard about how these loans spiral out of control, with those taking them out swiftly finding they owe many times more than they originally borrowed. I also heard about how they are being targeted at members of the community that have recently arrived in the country, and therefore may be less likely to understand the terms they’re being offered. A Somali women with two disabled children ended up with debts totally £3,000 pounds.
Several pieces of testimony were particularly interesting. One member of staff at a high street bank told us how the very act of taking out a payday loan affects people’s credit rating and makes it less likely they will be able to take out a conventional loan in future; one of many sad Catch 22s in the payday loan business.
Another concerned a different example of consumer credit terms being abused. A man with learning difficulties found he owed £2,000 to a phone company after being mis-sold a contract. They didn’t provide policy statements and essential information, and instead sold on his debt, so he found himself being harassed by debt collectors. In my own speech to the House of Lords last year I cited another worrying case of a family friend whose son had learning difficulties, and, having taken out a payday loan, saw it quickly get out of hand.
The extent to which the problem has proliferated in the past few years was clear, and I dread to think of how these predatory companies must be looking forward to the extensive cuts in benefit which began to really take effect this very month.
There were also some very encouraging developments. The Kilburn Campaign for Fair Credit are pressing council members, including those in attendance, to be able to have financial health advice right alongside the NHS health advice on Kilburn High Road. There was also the inspiring story of the man who set up a credit union on arriving in Kilburn as a teenager, just as his father had in Dublin.
Ultimately fighting the epidemic of payday loan companies will have to take different forms. It will require local initiatives such as these, which aim to educate and provide people with advice on credit. Changes to planning laws to make it harder for these shops to engulf an area are also important. I saw last year with Ed Miliband and Stella Creasy how this was happening in Walthamstow.
It was fantastic to see Ed say recently that the planning regulations now decimating our high streets need to change. Kilburn High Road has some fantastic small businesses, and more should be given the space to grow. They put money into the community; payday loan shops take it out.
Finally, we need to ensure the enabling act that I was proud to introduce last year is used. The newly formed Financial Conduct Authority now has the power to cap total costs of these loans, and no amount of prevaricating and backtracking from the government can change that.
Lord Parry Mitchell is a member of Labour’s Shadow Business team in the House of Lords
Published 15th April 2013