Miliband says Labour will act on payday lending

Labour leader Ed Miliband has today set out how the next Labour Government will raise millions of pounds through a levy on the profits of payday lenders - money which will be used to double the public funds available for low cost alternatives such as credit unions. He also announced that Stella Creasy, the new Shadow Minister for Competition and Consumer Affairs, has been given special responsibility to lead One Nation Labour's campaign against abuses by legal loan sharks which have blighted Britain's high streets and left many families with huge levels of personal debt.

The Labour leader says latest proposals are part of One Nation Labour's plan to tackle the worst cost of living crisis since 1870. He will also praise the work done by Labour campaigners across the country in helping families deal with soaring personal debt. The measures he is announcing today come in addition to previous policy commitments on capping the cost of credit and giving local authorities new powers to limit the spread of payday lending shops in town centres. On a visit to Peckham with Ms Creasy, Mr Miliband visited the office of a credit union and meet some of the people who have suffered at the hands of payday lenders.

Ed Miliband commented: "The cost of living crisis afflicting millions of Britain's families is so bad that it is creating a personal debt crisis too. The prices families have to pay keep on rising faster and faster than the wages they are paid. And, as a result, the market in payday lending has doubled in just four years. Almost a third of the payday loans taken out in Britain at the moment are to cover the cost of people's gas and electricity bills. For too many families the end of the month is now their own personal credit crunch.

"A One Nation Labour Government would deal with the causes of the cost of living crisis. But it would also act to help prevent people falling into unpayable debt with radical reform of the payday lending market. We would cap the cost of credit, halt the spread of payday lenders on our high streets and force them to fund the credit unions that can offer a real alternative for people in desperate need. We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders. And it is right that the companies that benefit from people's financial plight, accept their responsibilities to help ensure affordable credit is available."

Stella Creasy who also spoke at the event said: "Across the country Sharkstoppers and Debtbusters campaigners are working to address the damage payday lending debt is doing to the finances of millions of families who are struggling to make ends meet. Whether helping to increase the capital credit unions have to enable them to lend more, kicking these companies out of their football grounds and shopping centres, or supporting debt advice to those caught in spiral of debt by the practices of these firms, these are the people dealing first hand with this Government's failure to learn from other countries in capping the cost of credit. We are determined to see a cap introduced in the UK so that we can see an end to this legal loan sharking and give British consumers the protection they deserve."

Labour say that when payday lenders start to be regulated by the FCA next year they should be paying existing FCA levies to help fund services such as debt advice, like other financial services companies. But payday lenders have been making increasingly large profits as the cost of living crisis bites. Therefore we propose in addition to the current level of levy on financial service companies, we will increase the charge on payday lenders in order to raise millions of pounds to support alternative providers of lower-cost credit such as credit unions.

The Coalition Government funding for the expansion of credit unions is around £13 million per year. We are consulting on the rate and details of our addition to the levy, but under our plan we intend to double the government funding available for these alternative providers of low-cost credit.

This measure follows previous policy announcements on:

Capping the cost of credit.

During the passage of the Financial Services Bill, Labour tabled amendments to give powers to the Financial Conduct Authority to do this. While the Government initially opposed this they eventually gave in in the House of Lords and passed amendments of their own on this issue.

However, the FCA are clearly reluctant to use these new powers and although they say that they are considering the situation it seems unlikely that they will take action. We are criticising the Government for refusing to speed up new powers for the regulator, delaying real time monitoring across the high cost loans sector and prevaricating about a cap on the total cost of credit.

Giving local communities new powers to limit payday lenders on their high streets.

Currently local authorities and communities feel increasingly powerless to shape their town centres or do anything to halt the tide of payday loan firms which alter the character of a high street and can put off people visiting or investing, and damages other businesses already there. For instance, if a high street bank closes down, communities are powerless to stop a payday lender moving in because these are classed as the same kind of business.

Labour would create an additional umbrella planning class which allows local councils to decide if they want to place some premises in a separate category. Local authorities could then refuse planning permission on the grounds that, for example, opening a payday loan shop would constitute a change of use. It would also allow councils to control the spread of other types of outlet where there is local concern.
Britain's families face the most sustained cost of living crisis since 1870 with wages stagnant or falling and prices rising, millions of families are finding it harder than ever to make ends meet. This leaves many people more vulnerable than ever before, forced to rely on short-term credit to get them through the month.

The "explosion" in the payday lending market is directly related to the cost of living crisis:

• Up to 5 million families plan to borrow money from payday lenders in the next six months.
• This market has more than doubled in size between 2008-9 and 2011-12 to £2.2 billion.
• More than a third of people currently taking out a payday loan are doing so to pay household bills like gas and electricity.
• More than 1.5 million households are spending more than 30 per cent of their income on unsecured credit repayments.
• Personal debt is expected to rise to 175 per cent of household income by 2015.

Some payday lending companies have been taking unfair advantage of people exposed by the cost of living crisis in this way because families needing short term loans have few realistic options. Alternative lenders such as non-profit Credit Unions which limit interest to 26% a year currently lack the capacity and the capital to make more than a dent in the mountain of misery and debt.

Charities, churches, councils and communities all recognise the immense harm done by payday loan abuses at this time. The Office of Fair Trading has referred the entire industry to the Competition Commission because of reports of bad practice and a recent study by the Citizens' Advice Bureau reports that lenders even break 10 out of 12 of their own good conduct rules. This cannot continue.

Labour say It should therefore fall to government, working with local councils and communities, to act.

• First, it must make plans to deal with the cost of living crisis at root.
• Second, it must do all it can to help make low-cost short-term credit available to the millions of families who need it.
• Third, it must act now to tackle the worst of the abuse, including payday lenders charging interest rates of up to 4,000 per cent on temporary loans taken out by desperate families with nowhere else to turn.

But they claim this "Tory-led" Government stands up only for a privileged few and, just as it does nothing to stop energy firms overcharging families, drags its feet over uncontroversial reforms of a poorly regulated industry and is doing little of significance to boost low-cost alternatives to payday lending.

However Citizens Advice Chief Executive Gillian Guy says that a straightforward, quick way to take on payday lenders is for banks to offer personal micro-loans, as Labour leader Ed Miliband announces long term plans to boost funding for credit unions.

Gillian Guy said: "The proliferation of payday loans is a symptom of the squeeze on living standards. There is a clear demand for short-term credit, and while boosting credit union services could offer some help in the long term, consumers need more choice now. High street banks have been let off the hook by the lack of pressure on them to enter the short-term credit market. Banks need to offer a responsible alternative to payday loans like an affordable personal micro-loan.

Ms Guy concluded "Citizens Advice Bureaux see the hardship caused by payday loans on a daily basis. Some people are being given loans without proper assessments as to whether they can pay them back. Many see debts balloon as their loans are rolled over and others find their bank accounts empty after the misuse of continuous payment authorities. At the British Bankers' Association's international conference today I will be talking to banks about how they should be more innovative in the services they offer. This includes entering into the short-term credit market and looking at ways they can help people save money on the things they buy."