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Wednesday 7th December 2011 | 07:30
Whilst Westminster debate has focused on the public deficit, new research released today by insolvency trade body R3 shows the consequences of the Government’s failure to act on personal debt. Thanks to the mounting cost of living, cuts to wages and rising unemployment, millions of families now find there is too much month at the end of their money. One in six of us are now what R3 call ‘zombie’ debtors, able only to service the interest on our debts, but not reduce them. 45% of us are now in financial difficulties- a figure that rises to 62% amongst younger people.
This isn’t broken Britain, but broke Britain – and it is being bled dry by the legal loan shark industry and their interest rates of 1,700% or more. R3 highlight how in the next six months alone, a whopping 3.5 million Britons expect to take out a payday loan. 67% of those who do say they are unable to get credit anywhere else. In an unregulated credit market, the research shows just how financially dangerous this is, revealing 32% of those who took out a payday loan couldn’t pay it off, so had to get another one. By ‘rolling over’ loans into subsequent months borrowers are compounding these already extortionate interest charges and so falling deeper into debt. Little wonder the proportion of those who regret taking out a payday loan stands at 60%, while 48% believed their payday loan made their financial situation worse. This is not just bad for these families, but bad for Britain. As more and more household income is sucked into paying interest on these loans so the public are left with less money to spend, hurting an already anaemic economy.
For those of us who have been warning the Government for some time about the need to improve regulation of high cost credit, this research confirms our fears about the consequences of their refusal to act. Whilst most other countries have caps on the costs of credit, this Government stubbornly seeks to avoid such measures leaving consumers who are already struggling financially without any protection from these profit hungry predators. This isn’t about putting the industry out of business or ignoring worries regulation could push people to borrow from illegal lenders. Evidence shows countries with caps on credit have lower levels of illegal loan sharking, a thriving payday loans market but crucially more affordable financial products for their citizens.
In response to the campaign on legal loan sharking, the Government have commissioned research into capping the costs of credit. Yet this will not report back until late in 2012 and there is no commitment to regulate even after this further year of toxic costs to borrowers. Indeed, given their recent u-turn on tackling unfair bank charges and capping the costs of credit cards, consumers can have little confidence this Government really understands the importance of ensuring credit is affordable to Britain’s future.
In times of economic prosperity the Government’s delay in addressing the antics of these companies would be remiss. In these times of economic austerity where household debts are spiralling every month it is morally and fiscally reprehensible. Ministers refuse to discuss the matter, even in the face of evidence such as today’s research. To change their mind sign the petition calling on them to take action on high cost credit, and show you agree Britons deserve the same protection as other nations from these firms. If we don’t who knows how many more will find themselves drowning in a sea of debt with only the legal loan sharks for company.
Stella Creasy is the Labour and Co-operative Party MP for Walthamstow.
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