Stella Creasy tables amendment to Financial Services bill calling for the new financial regulator to be able to set a maximum amount payday lenders can charge for credit.
The Walthamstow MP, Stella Creasy, has tabled an amendment to the Financial Services bill calling for the new financial regulator to be given the power to set a maximum amount lenders can charge for credit, in a move she says will offer greater protection to consumers even if it is never used.
The bill, which covers a range of measures including a reform of how banks are regulated, will see the creation of the Financial Conduct Authority (FCA) to replace the Financial Services Authority. This body will also take regulation of consumer credit away from the Office of Fair Trading.
The FCA will be expected to protect consumers from being mis-sold poor financial products, but Creasy’s amendment seeks to allow it to set a maximum price for loans with a view to curbing costs in the short-term loans market.
The cap would not be on interest rates, which can reach as much as 36,000% APR on some payday loans, but on the total amount that could be charged for borrowing once arrangement fees and interest were added together.
The amendment, which is backed by other Labour MPs, reads: “The FCA may make rules or apply a sanction to authorised persons who offer credit on terms the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.”
Creasy, who has been vocal in her campaign against what she calls “legal loan sharking” – comparing the firms’ grip on the UK to that of Japanese knotweed – said three Conservative MPs had formally signed her amendment and others had voiced their support. However, it was unclear how many would vote in favour.
“There are lots of Tory MPs who are frustrated that their side is not coming up with any kind of alternative to this,” Creasy said. “It would be OK if the government was considering solutions, but they are not, and meanwhile more and more people are getting into difficulties with these companies.”
Payday loan companies like The Money Shop and Cash Converters have become a common sight on UK high streets as the economic downturn and credit squeeze has forced struggling consumers to look beyond high street lenders for money. Internet operations like Wonga have also taken off, allowing consumers to borrow cash at rates of up to 4,214% via their mobile phones and online.
Although the industry argues its loans are designed for short-term borrowing, some consumers find themselves rolling over their borrowing and accruing large debts. The annual interest rates mean anyone falling behind with payments quickly sees their debts mounting.
Creasy has argued that the UK is a “soft touch” for the companies involved in the industry, and her eventual goal is a total cost cap on these loans, similar those to operated in other European countries. The amendment would not be a cap, but would allow the regulator the power to impose one.
Currently, lenders can be sanctioned by the Office of Fair Trading if they are found to be in breach of their consumer credit licence, but it can take years for a licence to be removed, and Creasy argues fines are no deterrent. “For a company making £162m a year in profit, which is what Provident [Financial] is doing, how big a fine do you need to put them off?”
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