Cap the cost of credit to make life easier for those forced to turn to payday loans

Tackling the legal loan sharks.

Today, Lord Mitchell, an opposition spokesperson for Business, Innovation and Skills, will debate an amendment he has introduced to the Financial Services Bill (now in the report stage in the House of Lords) to potentially cap the total cost of credit which lenders can charge (this is different to capping interest rates in so far as interest rate caps can be sidestepped by upping other costs such as administrative fees. Total cost caps seek to address this potential loophole).

Many peers, like Lord Sugar and Baroness Thompson-Grey, the Welsh former wheelchair racer and disability campaigner, have already pledged their support for his amendment, which will give the new Financial Conduct Authority the power to apply sanctions to those who offer credit contrary to the its terms.

But it's an amendment which everyone, from all political parties, should get behind and support.

It is good for consumers

While the payday lending industry has enjoyed unprecedented growth (worth £100m in 2004, now worth over £2bn in 2012) in recent times, credit access has become tougher for consumers. Around 1.75 million UK adults go without a transactional bank account in the UK today and 9 million adults cannot access credit from mainstream banks. This spells bad news for consumers as the only option for many is expensive short-term loans. Capping the costs of credit will make borrowing less expensive for consumers, at a time when wages are stagnant and the cost of living rises.

It is good for the economy

Damon Gibbons for the Centre for Responsible Credit, in their recent report on Japan and interest rate caps, noted that, all things considered, putting a ceiling on the amount a lender can charge for a loan will make borrowing less expensive - given the rate at which over-priced short-term lending has risen over the last few years. This will have a knock-on effect on saving behaviour and investment. Reinstatement of savings initiatives like the Savings Gateway should also boost this kind of behaviour.

It doesn't contradict the Tory message

Small-c conservatives in the Tory Party have always raised concern about how financial institutions can hurt, rather than help, the finances of those most vulnerable in society. But even those of a more free market bent inside the party have started to see what a problem payday lending is. Damian Hinds MP, chair of the All-party Parliamentary Group on Credit Unions, for example, once felt the market would drive down prices in payday lending, but has now decided that “normal market rules do not apply with payday lenders”.

It will not boost illegal money lending

Important work carried out in 2010 by Professor Dr. Udo Reifner, Sebastien Clerc-Renaud, and RA Michael, for the European Commission, found no convincing evidence to back up the argument introducing interest rate ceilings leads to a growth in illegal lending “or would force people into arrears and default on bill repayments”. In fact it is found in the same report that in spite of the fact the supply of credit in France and Germany is not as abundant as in the UK, this has not been matched by an increase in illegal lending.

A shark. Not a loan shark. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

Photo: Getty
Show Hide image

Michel Barnier is Britain's best friend, but the Brexiteers are too shallow to notice

The right's obsession with humilating a man who should be a great British asset is part of why negotiations are in a mess. 

Sam Coates of the Times has the inside track on what Theresa May is planning to say in her big speech in Florence tomorrow: a direct appeal to the leaders of the European Union’s member states over the head of Michel Barnier, the European Commission’s chief negotiator.

I explained some of the problems with this approach in my morning briefing earlier today, but just to reiterate: the major difficulty is that Barnier’s mandate as a negotiator hasn’t emerged fully formed from the mind of some scheming bureaucrat in the European Commissio, but after discussion and agreement by the heads of member states. There are problems with the EU approach to sequencing talks, but the chances of changing it by appealing to the people who set it in the first place seems unlikely, to put it mildly.  

Barnier seems to occupy a strange position in the demonology of right-wing Brexiteers, I suspect largely due to ignorance about how the EU works, and in some cases Francophobia. The reality is that Barnier is the single politician outside of the United Kingdom with the most to lose from a bad Brexit deal.

If the Brexit talks end badly, then that will be the first line of Barnier’s obituary. Back in his native France, the centre-right is in opposition and none of the candidates vying to lead the Republicans are are going to give him a big domestic job to save his reputation.

His dream of parlaying a successful turn as the EU27’s chief negotiator into running the Commission relies not only on the talks succeeding, but him cultivating a good relationship with the heads of government across the EU27. In other words: for Barnier to get what he wants, he needs both to secure a good deal and to keep to the objectives set for him by the heads of member states. A good deal for all sides is a great deal for Barnier. 

As a result, the Brexit elite ought to see Barnier as what he really is: their best friend on the other side of the table. Instead, they are indulging in fantasies about tricking Barnier, undermining Barnier, and overcoming Barnier. In short, once again, they are bungling Brexit because they don’t want to think about it or approach it seriously. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.