The Community Investment Coalition (CIC) today urged the House of Lords to put an end to the payday lending misery being experienced by millions of hard up households by backing an amendment to the Banking Reform Bill that would establish a proven regulatory regime for the industry.
An amendment tabled for debate at Report stage of the Bill by the Liberal Democrat peer, Lord Sharkey, would require the Financial Conduct Authority to establish regulations based on the Florida, USA, model of payday lending regulation, and which would:
- Ensure that borrowers only obtain one payday loan at a time;
-Put an end to the practice of 'rollover' lending, which has been shown to drive people into debt problems;
- Establish pro-active enforcement through the use of a real-time database of high cost credit agreements;
- Reduce the cost of borrowing to around £10 per £100 lent – less than half the average costs currently being charged by the UK's payday lenders.
These regulations have been proven to work in Florida, where far from putting lenders out of business, the volume of small sum loans has increased in recent years, whilst borrowers have been protected from exploitative pricing and predatory lending practices.
Commenting on the amendment tabled by Lord Sharkey, Damon Gibbons, Director of theCentre for Responsible Credit, a CIC partner, said:
“This amendment is spot on. It draws on the very best regulations currently in place in Florida. The experience there is very positive. In contrast to the huge level of debt problems caused by payday lending in the UK, the number of people getting into difficulty with these loans in Florida is negligible. Defaults there are much lower. In the last year the loan loss rate was just 2 per cent, compared to an average of 14 per cent in the UK. That allows the cost of credit to be capped at a low level, and makes them more affordable for borrowers.”
Jennifer Tankard, speaking on behalf of theCommunity Investment Coalition (CIC)said:
“CIC campaigns for access to fair finance for families, businesses and communities. Rising living costs and stagnating or declining income levels, together with a lack of access to affordable mainstream financial service products means that many people are becoming reliant on high cost credit to pay for household essentials such as food and utility bills. Effective regulation is critical to ensure that payday loans don't lead people into a cycle of debt that they struggle to escape from.”
Speaking about the misery currently being caused by payday lenders in the UK, Angela Clements, Chief Executive of Birmingham's CitySave Credit Union said:
“For the past four weeks we have invited payday borrowers to come to us and tell us about the problems they are having. The results are shocking. Lenders have raided people's bank accounts, leaving them with no money to pay for essentials. In extreme cases, people have been unable to get to work due to the use of continuous payment authorities.”
Notes:
1. Lord Sharkey's amendment to the Banking Reform Bill is due to be debated on 27th November 2013 in the House of Lords. The full details of the amendment can be found here
2. A recent report from the Centre for Responsible Credit looked at the experience of Florida's payday lending regulation, finding that this had proved effective in reducing default levels and reducing the cost of credit for borrowers without putting lenders out of business.
The report also highlighted the need for the UK to put in place a real time database of high cost credit agreements as an essential tool to prevent the damaging practice of rollover lending. The full report, 'Tackling the high cost credit problem: the importance of regulatory databases' can be downloaded from here.
3. Birmingham CitySave Credit Union has been providing a 'pop up loan shop' in Birmingham City Centre for the past 4 weeks. This has been supported by Birmingham City Council. During this period 350 people have called in for loans or for advice on their debts.
Problems reported with payday loans include a failure to provide receipts or statements; a lack of notification of continuous payment authority; a lack of clarity about the actual amounts being charged. In some cases, the level of interest and fees means that the loan repaid bears no resemblance of the loan taken out. For example, a £50 loan without any late fees or penalties may cost £217.55 to repay. Once fees and penalty costs are added a £300 loan has been found to cost over £1500.
The failure of payday lenders to properly check whether or not a borrower can afford to repay is also apparent and the consequences of this are severe. Cases so far include people being evicted from their homes and having no money to get to work.
About the Community Investment Coalition (CIC)
The Community Investment Coalition is a partnership of national organisations, which aims to increase access to affordable finance for all communities.
Membership includes the Community Development Foundation (CDF), the Centre of Responsible Credit (CfRC), the New Economics Foundation (nef), CCLA and the Community Development Finance Association (CDFA).
We are campaigning for:
- Increased transparency and public accountability of financial service providers to support consumer choice and allow affective intervention in under served markets.
- Increasing diversity of the finance sector with a greater range of providers offering a wider range of fair and affordable products to all households, individuals, small and micro businesses and communities.
- Sustainable local economic growth with a greater share of locally generated income remaining within communities to drive economic growth.
Visit the Community Investment Coalition website for more information.