Lord Parry Mitchell Speech in Lords debate on payday lenders House of Lords, 20th June 2013

My Lords, I too would like to start by thanking my noble friend Lord Kennedy of Southwark for securing this important debate. Both he and I share a passion for this subject, and both of us are determined not to let the issue die. We both see the misery and hopelessness which is caused by payday lending and other forms of loan sharking. We see it on our high streets, we see it online and we see it being advertised on our London buses. My Lords I would like to recreate the mood that existed in your Lordships House last November. I had introduced an amendment to the Financial Services Bill which we had discussed at committee. At Report stage I was fortunate enough to secure as co-sponsors of my amendment the nobel Baronesses Lady Howe of Idlicote and Lady Grey-Thompson. In addition the then Bishop of Durham and now the most reverend primate the Archbishop of Canterbury also sponsored the amendment. By any measure my Lords, we had lined up the big guns. Imagine my surprise the day before the debate, just as I was about to enter the tube at Westminster Station, when I received a call from the Treasury Bill Team. As nobel Lords will know this doesnt happen too often to mere mortals. The gentleman in question told me that the Government wanted me to withdraw the amendment the next day. I was more than surprised - I told him that we were going to soundly defeat the Government, so why should I withdraw? Because, he told me, we know you are going to win and because the Government has totally reversed its position and now wants to support you. But, he went on, we want to improve the wording and make it much more effective. I staggered into the station hardly believing what I had heard. The next day the Government was true to its word. They announced that at third reading they would introduce a tougher more comprehensive amendment. And so it was, my Lords, with great joy and a sense that right had prevailed, that I withdrew. The revised amendment was introduced at third reading. It was in the name of the noble lord Lord Sassoon for the Government and I added my own name to it. It went through on the nod, it was confirmed in the other place and it went onto the statute book. To capture the mood at the time I would like to recount the words of the noble lord Lord Sassoon who was the Treasury Minister at the dispatch box: The Government are, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm that vulnerable consumers suffer. and Our objectives here are the same: they are to ensure that consumers of financial services have access to credit when they need it and at a price they can afford; and to ensure that the regulator is under a clear obligation, and fully empowered, to ensure that consumers are protected.

My Lords I must emphasise the noble Lords words - at a price they can afford. It was a Government U-turn of monumental importance, but to their credit it was one that they made with good grace. But very soon the mood music changed and from statements coming from various Government ministers, it became pretty obvious to me that the Governments heart had gone out of the matter. They were retracting their position. Following the OFTs report on payday lending companies, I put down an oral question in March asking whether the Government was now reluctant to place caps on interest rates on these loans? The noble lord Lord Popat replied: a cap will reduce access to credit and will mean fewer lenders The noble Lord carefully avoided the fact that interest rate caps operate successfully in Japan, France, Italy, Germany, Slovakia, and in many states in the US. I dont know how this succession of events appears to noble Lords, but to me it sounded like another Uturn. In four months this Government had performed a spectacular double U-turn - such athleticism and so devastating. Of course the amendment is now law and the FCAs powers will become effective next April, but authorities are sensitive to what the Government says and I am sure that they will see that the heat has been taken out of the matter. The Government no longer cares. So I want to ask the nobel Lord the minister three very simple questions: does the Government accept that it is reasonable for London buses to be driving around advertising loans that bear an annual interest rate of 4,200%? will the Government state unequivocally that usurious interest rates are morally wrong and should be made illegal? will the Government state emphatically that they will support the FCA in word and deed in its efforts to curb all the abuses of payday lending? I would like to add just one other point before I turn to Credit Unions. In previous years loansharks were very obvious. Muscular men, probably with tattoos on their forearms and oozing menace - their companion of choice - a pit-bull terrier. Their message was crystal clear - if you dont repay on time you know what will happen. Today payday lending is 21st century cool. iPhone apps. Slick websites. High street offices with smiley people and flowers on the desks. Spivs in silk shirts and expensive trainers. My Lords they can disguise it any way they like, the fact is that they all loansharks - some are legal, some are not - but they all peddle the same usury. The noble Lord Kennedy has been a champion of the Credit Union movement and has spoken eloquently on this subject a number of times. The twin combination of the excesses of the recession and the reduction in Government benefits has made life doubly painful for many people in our society. More than ever it is necessary to have viable alternatives to legalised loansharking and payday lending. In April I saw a vivid example of this. I joined the Movement for Change and the Fair Credit Commission and I went to Kilburn. There I walked the High Road along with local residents. Today the street has at least 13 payday lending shops on it. It mirrors the situation in many other parts of the country. Local residents told me about members of their community running up un-payable debts. In one instance, a woman with disabled children told us how she now owed around 3,000. In another a man with serious learning difficulties told us how his unpaid and bill with Vodafone had been sent to debt collectors when he was unable to pay. There the payday pattern of interest swung into effect - the amount outstanding

rocketed as massive interest rates came into play. There are thousands upon thousands of stories like this around the country. Some talk of suicide. One of the more positive stories was that of a man who, like his father in Dublin, had set up a credit union in Kilburn after arriving there as a teenager. As Noble Lords will be aware, the credit union movement in Ireland is particularly strong, with almost half the population using their services. It is a vivid example of their potential to expand here. This is especially needed as historically, what credit unions provide reaches beyond just savings and credit, to financial advice and encouraging a culture of saving. Glasgow Councils plans announced this week to open a credit union account for all children starting secondary school is a particularly interesting step in that direction. This kind of financial advice contrasts sharply with the growing evidence about how payday loan companies are operating. For instance, a Citizens Advice survey of customer feedback from 2,000 payday loans found that 87% asked for no documents as to whether the loan could be paid back. Shockingly, 70% put pressure on customers struggling to repay to renew their loans, which as Noble Lords will know, is how dangerous levels of debt can quickly accumulate. Noble Lords will already be aware of the ministerial statement from last week that credit unions are now able to charge a maximum of 3% a month. It bears a stark comparison with the 38% per month charged by Wonga and others all of which has no maximum. Hopefully Credit Unions will be able to offer their services to more people and to run on a more secure financial footing. I hope that credit unions will be able to take advantage of new technology to improve their provision of low cost credit to the people that need it. This was recommended in ABCUL report on credit unions in London, and by Gillian Guy of Citizens Advice who wrote an article in the FT this April, which encouraged different providers to use modern technology to deliver financial support to those who need it. In March this year the OFT published their final report into this industry. It confirmed what many already suspected. 50% of their revenue comes from loans which are not paid back straight away and are rolled over. 20% of revenue comes from the 5% of loans that are rolled over four or more times. The OFT accused the industry of widespread non-compliance with the law. They gave all 50 of the leading lenders they investigated a warning that they needed to improve their practices or face closure. Despite this Margaret Hodge MP - the chair of the Public Accounts Committee criticised the OFT itself calling them ineffective and timid. Last week the Bureau of Investigative Journalism published statistics from its own study of the industry. A few points stood out. The first was the phenomenal number of companies. Secondly the number of animal themed names; Monkey Dosh, CashCow Now, Payday Pig and Cashcat. All very fluffy and cuddly. Others have names that boast of how easy it is to get a loan: (QuidQuid, Money in Minutes, Kwik Cash, Kwick Payday, Speedy Dosh, Speed-e-loans, Swift Sterling and the imaginatively named Get a Payday loan fast) to name just a few. By combining the statistics of the various surveys with those from the OFT earlier, about the high percentage of the profits that come from rolling the loans over, we can get a full sense of the scale of the problem. In view of the massive size of this industry and its inexorable rate of growth, I would like to conclude by asking the noble Lord a final question. Would the Government support a private members bill to ban advertising for payday loans? ENDS