Another step forward on the long, long road to fair credit

David Barclay, Faith in Public Life Officer at the Contextual Theology Centre, and organiser on the Citizens UK Just Money campaign writes:

This is the day that many thought would never come. It is now almost five years since a group of churches, mosques and synagogues in the civil society alliance Citizens UK began to call for a re-introduction of anti-usury laws to stop people being exploited by excessive interest rates. Today, finally, plans have been announced for a total cost of credit cap.

And yet it is a day of some disappointment for the many campaigners who have worked so hard for this as they examine the proposals put forward by the FCA. The 0.8% per day cap would take just £1 off the industry average loan price, while the 100% total cost of credit cap would still mean that companies can maximise their profits by lending to people who they think won’t be able to pay back on time.

The Citizens UK Just Money campaign has already seen too often the impact of these practices. Take Sarah for example, a student at the University of East London who took out a payday loan when her student loan didn’t come through on time and ended up with her debt spiralling out of control. Or Deborah, a single mum who took out a loan over a year ago and is still spending most of her child benefit on the repayments.

They have both become actively involved in the Just Money campaign which in the last year has been highlighting the much stronger regulation of this sector in countries like Canada and working for local bans on payday loan adverts from Council-owned spaces. Along with the many others campaigning for a cap they should be enormously proud of the way their refusal to remain a passive victim of an exploitative industry has led to change.

But they will also be rightly angry that this change will not go far enough. The caps proposed would have barely changed the price of the products that Deborah and Sarah were sold. And whilst the proposed cap will put some limit on how much damage any one loan can do, it still won’t stop the common practice of people taking out one payday loan to pay off another. So even if some of the payday lenders’ worst business practices will now be outlawed, they can still shamelessly offer their products to those who are already in debt and then use what’s called a Continuous Payment Authority to get their hands on as much of someone’s income as possible before they have time to spend it on essentials.

If the FCA were really serious on clamping down on exploitative lending they would do three things. Firstly they would bring their caps down to a level that had some real impact on the price of a payday loan. Secondly, they would clamp down on the scourge of multiple loans through a real-time database (already suggested by StepChange debt advice charity and others). And finally they would accept the Just Money proposal to use the fines they collect from payday lenders and banks to endow a Community Finance Fund in order to support more ethical businesses like credit unions.

Only in this way would we start to really see the tide turn on exploitative lending, and prevent the stories of people like Sarah and Deborah from being repeated all over again.

N.B names have been changed to protect the privacy of the individuals involved.


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