Creasy hits out as Government opts for 'self-regulation' of payday loans industry

Published by Jon Land for 24dash.com in Bill Payments and also in Central Government, Housing

Labour MP Stella Creasy has expressed her disappointment at the Government’s "repeated failure" to tackle the problems caused by high cost loans.

The Walthamsow MP spoke out after the Government urged the payday loan industry to 'self-regulate'.

Creasy has led a long-running campaign against high street lenders such as Wonga and The Money Shop, branding them "legal loan sharks" for the high rates of interest they charge.

She said: "It is disappointing that despite the overwhelming public support for action the Government still refuses to act. Anyone who has seen the way these companies are targeting UK consumers will know that asking them to police themselves is like Red Riding Hood asking the wolf to babysit Grandma!

"We know self-regulation is of limited value in an industry with so many different companies and growing so rapidly. Indeed they tried to claim before they could be trusted to self regulate last year- but still the levels of debt and difficulty consumers experience with these companies are rising every day.

"The little progress this code represents, if the lenders stick to it, on continuous payments, rollovers and consumer information will do little to counter the root causes of the difficulties consumers experience in this industry in the UK.

"Above all, with one in three payday loans taken out to pay off other payday loans and damning independent reports of the widespread malpractice within the industry from Which?, a voluntary code will do little to give consumers the confidence this Government really understands the way in which these firms are operating here in Britain.

"As the evidence mounts up of the problems caused by this industry my question is how many more people suffering will it take before the Government finally gets a grip? Whilst they yet again listen to the industry, we will continue to listen to the people of Britain and campaign for caps on the costs of credit to give them the same protection from this industry that others around the world enjoy."

Following the Government's call to act, the four main trade associations representing the payday loans industry - the Consumer Finance Association (CFA), Finance & Leasing Association (FLA), British Cheque & Credit Association (BCCA), and the Consumer Credit Trade Association (CCTA) - issued a joint statement promising improved standards.

It reads: "As trade associations, we are committed to good practice in the payday and short-term lending markets, and we have worked closely together and with the Government to develop this new set of standards, which add to those already contained in existing Codes of Practice.

"While the OFT is currently investigating the payday lending market and the Government is reviewing the regulation of credit more generally, these new commitments will go further than current statutory regulation and deliver important new rights for customers of lenders who are members of the BCCA, CCTA, CFA and FLA.

"These include better communication, clearer information about price and payment, appropriate affordability assessments, and practical help for those in financial difficulty.

"We look forward to continuing to work with the Government and the Office of Fair Trading so as to maintain high standards in the short term credit markets."

Earlier this week, Housing Minister Grant Shapps helped to defeat an amendment to the Financial Services Bill that would have capped the total costs that can be charged for 'payday loans' - despite having written a report slamming extortionate APRs just three years ago.

Shapps was among 266 MPs who voted against the amendment, put forward by Stella Creasy.

Three Conservative MPs - Zac Goldsmith, Mark Reckless and Philip Hollobone - backed the proposed changes to the Bill, which would have given the new Financial Conduct Authority the ability to "make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment".

This would have included 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".

In his report entitled 'Pay-Day for Loan Sharks', written when he was shadow housing minister and which is still available on his website, Shapps set out his opposition to the extortionate interest rates charged by legal loan sharks.

“We think it is obscene that anyone should end up paying 10,000% APR, particularly when the evidence suggests that these loans are targeted at some of the most vulnerable members of our society," he wrote.