Finally - a bill that could actually do something to regulate the payday lending industry

Blomfield's private members' bill includes measures to set new rules around the affordability of loans, payday loan advertising, debt collection and payment, debt support, and penalties for companies who fail to comply with existing regulator guidance.

It's Monday 1 June, the government are under pressure to do something about the payday lending industry, a summit is set up, but before proceedings even begin it's noted that the discussion will not tackle modifying the price of high cost credit. Instead it will be a light conversation on what cosmetic changes can be agreed to.

On the same day Wonga's chief executive Errol Damelin told an audience at a conference on money banking and finance hosted by Wired magazine in Canary Wharf: "We'd love as serious a regulator as possible to help understand the business, and the more proactively engaged our regulators are the better."

He's talking about the Office of Fair Trading (OFT), the same regulators as the ones who earlier in the year threatened tougher compliance checking before sending letters out to each payday lender operating in the UK. He's also talking about the same OFT who Wonga had to write an open letter to informing them that they had not sent over any “specific information” for them yet.

This is why I support the private members' bill by Paul Blomfield MP, which gets its second reading this Friday. Left up to the current administration very little would get done to the light-touch regulatory structure over this controversial industry. The outcome of the summit is still more waiting around, regulators sitting on their hands, action to properly address high cost credit not being carried out.

Blomfield's bill includes measures to set new rules around the affordability of loans, payday loan advertising, debt collection and payment, debt support, and penalties for companies who fail to comply with existing regulator guidance.

The details and strengths of the bill are straightforward. The Financial Conduct Authority (FCA), who take over from the OFT on regulating payday lenders in April 2014, will be able to cap the cost at which a lender can charge you for credit – which at the moment is around £30-35 per every £100 borrowed over a 30 day period – to a reasonable proportion of a borrower's income.

Consider now how unreasonable this cost is today. Let's say you take out £100 from a payday lender, typically you can end up paying back around £130, provided it's paid back on time. If you arrange an authorised overdraft of £100 from your bank, for example, you would pay back £101.60, which includes the £100 principle and £1.60 in interest (though many banks allow overdrafts of this cost to be interest or fee-free).

Let's take another example. If you take out a payday loan of £300 (just above the average £270 which was borrowed in 2012) you would pay back £390 if you paid back on time after 30 days. With a credit union loan of £300 it would cost £4.47 in interest. Paying back £304.47 rather than £390 is a no-brainer.

The other strengths of the bill include setting advertising standards for the industry showing how much you could spend on a loan from a payday lender in pounds and pence, rather than at the annualised percentage rate (APR). Advertising would also have to show a "health warning" sign, to show that it is rarely the best form of credit to apply for in hard times.

The bill also calls for a freeze on all charges when a person with a payday loan misses a payment, the obligation for lenders to signpost free impartial advice on debt, and enforcement powers to be determined, such as compensation, if the details of this Act (if it becomes an Act) are breached.

What Paul Blomfield MP has done in his bill is absolutely necessary. The new FCA regulation was supposed to have teeth but as we find out more of the detail there are already gaps emerging. Furthermore the government, though in principle wanting to tackle predatory lending, are flagging. This bill is a corrective to all that.

A sign for a loan shop on Brixton High Street in London. 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 Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.