Parry Mitchell on the latest battle in the Lords to check the activities of pay day lenders
In a speech that I gave in the Lords two years ago, I summed up the payday lending industry by quoting a line from The Eagles’ classic track ‘Hotel California’: “you can check out any time you want, but you can never leave”. It somehow seemed to sum up the whole nature of the industry that once you have taken out a loan, you were trapped for ever. Compound interest at 5,000% would simply accelerate your loan to stratospheric proportions.
I quote the example of a friend of mine, whose unemployed son had taken a payday loan for £400 and six months later my friend had to settle for £3,000. The companies offering these loans loved the UK – there were no restrictions and they could get away with murder. The most successful was Wonga, who were making profits of close to £100million each year and whose owners were looking to make billions when the company obtained a public listing.
Well it never happened.
Payday lending has been my personal campaign for the past three years. I haven’t been alone, in that I have been backed up by fabulous Labour colleagues in both the Lords and Commons. And we have achieved some magnificent results, including dragging the government kicking and screaming towards a cost cap.
The Financial Conduct Authority (FCA) has now bared its teeth and already restricted pay day loan activities. In five weeks, it will impose a total interest rate cap that will clobber the industry. According to the FCA themselves, many of these lenders will pack up and go homem with only a few surviving.
So it really has been an achievement. But there are still aspects that we need to address.
Today, during the final session of Report on the Consumer Rights Bill, Peers will debate the advertising of payday loans before the watershed. I will argue that in the average UK family household, the TV is on for at least four hours a day, so any advertisement for payday loans is likely to be seen by children. The statistics bear out the case – one third of all 13-17 year olds think that payday lending adverts are fun and tempting. They know the jingles and laugh at the puppets. Over half of them could name at least three of the companies involved. And three quarters of all parents believe such adverts should not be shown before 9pm.
The payday lending companies are very skillful, spending millions on marketing and advertising. They understand ‘pester power’, getting children to urge their parents to take out a loan whenever they want a new pair of trainers or similar.
Ministers will claim that sufficient powers exist for the FCA or the Advertising Standards Authority to restrict advertising where appropriate, but the fact is they haven’t. They may well offer us a sop, but we must refuse it. This industry has to be taken to task.
Two years ago, almost every bus in London was festooned with pre-Christmas advertising from Wonga using the strap line ‘Straight Talking Money’. As we now know, there was never much about it that was straight. Parliament has the power to ban these advertisements before the watershed, and I hope colleagues across the Lords join Labour and others today in our attempts to do so.
Lord Parry Mitchell is backbench Labour Peer and a long-standing campaigner on pay-day lending issues. He tweets @lordparry
Published 26th November 2014