SLF supports capping the cost of credit and ending legal loan sharking

On Thursday February 3rd 2011 MPs will vote on a motion tabled by Stella Creasy MP (Lab, Walthamstow), on whether to introduce caps on lending rates charged for payday loans and other unsecured debt – the Social Liberal Forum supports the motion, as well as the wider campaign to end legal loan sharking run by Compass.

The motion will be voted on a day before Ms. Creasy’s Private Member’s Bill [Consumer Credit (Regulation and Advice) Bill] gets its second reading in the House of Commons, and is worthy of support on several grounds:

  • As the Compass campaign highlighted so effectively, “around 3 million people use high cost door to door loans which often charge £83 in interest and collection charges for every £100 borrowed” – equivalent to APRs in the hundreds if not thousands of percent.
  • Since the recession the number of vulnerable people relying on such loans to make ends meet has gone up, further highlighting the need to prevent their exploitation by profiteering loan sharks.
  • As pointed out by SLF Council member Linda Jack on her blog, the measures called for in the motion, the campaign and indeed the Bill fit well with existing Liberal Democrat policy, which call for caps on interest rates charged by credit and store card providers as well as better regulation of the unsecured debt market.

Thursday’s vote follows the launch of an All-Party Parliamentary Group (APPG) on Financial Education, co-chaired by MPs Justin Tomlinson (Con, Swindon North), Stella Creasy and Duncan Hames (Lib Dem, Chippenham). The cross-party support for the measures outlined in the motion on loan sharks and by the APPG represent real examples of pluralist politics, and we expect that partisan considerations will be put to one side for this initiative. It is crucial that Parliament votes in favour of rate caps to protect the vulnerable from exploitative lending practices, and we look forward to seeing Liberal Democrat MPs offering their support.

Posted in blog archive, Uncategorized
5 comments on “SLF supports capping the cost of credit and ending legal loan sharking
  1. I hope Lib Dem MPs listen to the advice of the money saving expert Martin Lewis who believes it is inapproriate to cap APR on payday loans.

    http://blog.moneysavingexpert.com/2011/01/28/dont-tell-mps-im-against-payday-loan-regulation/

    If I borrow £50 from a mate for a week for the cost of a pint (£3) the APR equivalent runs into the thousands. No legitimate commercial organisation would be able to operate under these propsed restrictions, simply throwing needy people back into the unwelcome arms of the loan sharks.

    I hope Lib Dem MPs vote against this no doubt well intentioned, but frankly ill thought out proposal

  2. prateekbuch says:

    @Dan: If you read Stella Creasy’s motion carefully, you’ll see that it calls for the “total cost of credit” to be taken into account when setting caps, something that Mr. Lewis is expressly in favour of according to the link you posted.

    Capping APRs may not be appropriate, but capping the total cost of credit from organisations such as payday companies, is arguably the most effective way of ensuring the vulnerable aren’t exploited by legal-but-wrong lending practices.

    As for the government’s attempt to torpedo Ms. Creasy’s motion today with a wrecking amendment – that deserves another post in its’ own right…

  3. Anonymous says:

    Agree with Dan. Interest rate caps are a blunt tool and, to use mixed metaphors, potentially a double-edged sword. On their own, they will push indebted consumers to illegal lenders and potentially far worse situations. Don’t just take my word for it – why haven’t the most significant experts on these issues (e.g. Citizens Advice, Which, etc) backed such proposals?

    Answer is that they could only work if there is a readily available supply of credit to the worst off in society that is also fair, i.e. much more than social fund loans. Until the Coalition comes up with such products (the market won’t, so lets not even go there) or the Stella Creaseys of this world tackle to whole issue not just the headline-grabbing parts, then this will never be properly addressed.

  4. Prateek Buch says:

    @Anonymous – I refer you to my previous answer (always wanted to say that!), where I make clear that it is the total cost of credit that is to be capped under Stella’s proposals, not just interest rates.

    Indeed, that is what is in the headline to this article – I don’t think any of us could make it much clearer!

    I do agree that social funds need to be boosted and would be happy to bring this up with Lib Dems at the next available.

    thanks!

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1 Pings/Trackbacks for "SLF supports capping the cost of credit and ending legal loan sharking"
  1. [...] This post was mentioned on Twitter by stellacreasy, Chris Paul, Linda Jack, Prateek Buch, Linda Jack and others. Linda Jack said: http://j.mp/i4K1Hg Social Liberal Forum come out in support of @stellacreasy – a less ranty perspective than mine :-) #vote4credregbill [...]

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