The Community Investment Coalition (CIC) has urged the House of Lords to put an end to the payday lending misery being experienced by millions of hard up households by backing an amendment to the Banking Reform Bill that would establish a proven regulatory regime for the industry.
An amendment tabled for debate at Report stage of the Bill by the Liberal Democrat peer, Lord Sharkey, would require the Financial Conduct Authority to establish regulations based on the Florida, USA, model of payday lending regulation, and which would:
Ensure that borrowers only obtain one payday loan at a time;
Put an end to the practice of ‘rollover’ lending, which has been shown to drive people into debt problems;
Establish pro-active enforcement through the use of a real-time database of high cost credit agreements;
Reduce the cost of borrowing to around £10 per £100 lent – less than half the average costs currently being charged by the UK’s payday lenders.
These regulations have been proven to work in Florida, where far from putting lenders out of business, the volume of small sum loans has increased in recent years, whilst borrowers have been protected from exploitative pricing and predatory lending practices.
Commenting on the amendment tabled by Lord Sharkey, Damon Gibbons, director of the Centre for Responsible Credit, a CIC partner, said: “This amendment is spot on. It draws on the very best regulations currently in place in Florida.
"The experience there is very positive. In contrast to the huge level of debt problems caused by payday lending in the UK, the number of people getting into difficulty with these loans in Florida is negligible.
"Defaults there are much lower. In the last year the loan loss rate was just 2 per cent, compared to an average of 14 per cent in the UK.
"That allows the cost of credit to be capped at a low level, and makes them more affordable for borrowers.”
Jennifer Tankard, speaking on behalf of the CIC, added: “CIC campaigns for access to fair finance for families, businesses and communities.
"Rising living costs and stagnating or declining income levels, together with a lack of access to affordable mainstream financial service products means that many people are becoming reliant on high cost credit to pay for household essentials such as food and utility bills.
"Effective regulation is critical to ensure that payday loans don’t lead people into a cycle of debt that they struggle to escape from.”
Angela Clements, chief executive of Birmingham’s CitySave Credit Union, observed: “For the past four weeks we have invited payday borrowers to come to us and tell us about the problems they are having.
"The results are shocking. Lenders have raided people’s bank accounts, leaving them with no money to pay for essentials.
"In extreme cases, people have been unable to get to work due to the use of continuous payment authorities.”