It gives me great pleasure to say that those of us who campaign to reduce the grip that payday lenders have on the most vulnerable individuals and families in Britain have won a very important victory. The Government has agreed to provisions within the Financial Services Bill providing the newly created Financial Conduct Authority (which will come into existence 1 April 2013) with the power to cap the cost of credit agreements.
While many were understandably focusing on the Autumn Statement, it was finally agreed by the government on Wednesday that the FCA will be able to create rules that:
- Prohibit the charging of certain types of fees which it considers to be unacceptable;
- Prohibit the charging of costs above an amount which it specifies as unacceptable; and
- Prohibit rollover lending, where a debtor arranges separate credit arrangements in order to settle existing ones.
One signatory to the successful amendment of the Financial Services Bill, Baroness Grey-Thompson, told me:
There are too many tragic stories of people who have got themselves in to a massive financial mess, which seems impossible to get out of. I hope that these proposals will crack down on the worst excesses of these loans.
Something that came up in the debate is that we need better access to loans for people, and that we should consider more credit unions. I am by no means an expert on financial matters, but it worries me that people can easily get themselves in to great financial difficulty.
Conservative MP for East Hampshire, Damian Hinds, while welcoming of the move forward by the government, has said that providing a cap on credit is only one part of the overall battle. A shift in direction needs to take place for credit unions too.
The sector needs a sensible degree of change which maintains safeguards and comfort for customers, but allows them to get onto competition terms with payday and home credit lenders and rent-to-buy stores.
Both Baroness Grey-Thompson and Damian Hinds MP are correct – this is fantastic news. Damon Gibbons of the Centre for Responsible Credit has even called it a “historic moment”. But the fight doesn't end here.
We must go further. We need:
- The creation of a Community Reinvestment Act, which would oblige banks not lending sufficiently in local communities to sponsor local affordable lenders such as credit unions;
- The reinstatement and centralisation of the social fund – something that could be operated through a credit union; and
- Banks offering emergency overdrafts to more people without charging interest rates that rival those of payday lenders.
We have witnessed a great victory, and an actual government u-turn (I won't rub it in), but we cannot afford to be complacent. The fight against bad debt has only just begun.