Shake up con­sumer credit rules

The Peterborough Evening Telegraph - - Westminster Life -

This week the Com­mons Pub­lic Ac­counts Com­mit­tee, on which I sit, has been con­sid­er­ing the reg­u­la­tion of con­sumer credit, an is­sue which has had a high pro­file re­cently, with some crit­i­cism of com­pa­nies like Wonga and Prov­i­dent Fi­nan­cial.

The num­bers are mas­sive: £ 176 bil­lion was bor­rowed by UK con­sumers last year from credit providers like credit card com­pa­nies and pay­day lenders ( not in­clud­ing mort­gage lend­ing).

It’s cer­tainly the case that there is cur­rently a fierce de­bate go­ing on as to whether such “pay­day” loan com­pa­nies should be more strictly reg­u­lated es­pe­cially at a time when the econ­omy is strug­gling to emerge from re­ces­sion and house­hold bud­gets are be­ing squeezed.

My own view is that I would rather those peo­ple who are fi­nan­cially dis­ad­van­taged at least have a choice – and can make an in­formed de­ci­sion when ap­ply­ing for credit – from or­gan­i­sa­tions which are prop­erly reg­u­lated by law. The fact is banks are still fail­ing to pro­vide ap­pro­pri­ate credit to such peo­ple and the other alternative is the crim­i­nal thug­gery of loan sharks, on the fringes of ne­far­i­ous ac­tiv­i­ties like pros­ti­tu­tion and drug deal­ing.

I do have a prob­lem with com­pa­nies whose busi­ness model seems to prey on the vul­ner­a­bil­ity of cer­tain tar­get groups – those who are in re­ceipt of ben­e­fits, less well ed­u­cated peo­ple and the old and lonely. Even well ed­u­cated and con­fi­dent folk would strug­gle to ex­plain to you what APR means and I’m one of them!

I’m rarely in favour of greater reg­u­la­tion but government does cer­tainly have a role to play.

We need bet­ter in­for­ma­tion and trans­parency for th­ese fi­nan­cial prod­ucts, more fi­nan­cial ed­u­ca­tion for school chil­dren and young peo­ple gen­er­ally and a more con­sis­tent in­dus­try- wide use of credit ref­er­ence com­pa­nies.

We also need to limit the num­ber of cus­tomer ex­ten­sions and roll- overs, It is un­ac­cept­able that peo­ple can be trapped into a cy­cle of in­creas­ingly ex­pen­sive debt. Fi­nally, there needs to be a cut- off point, when fees and the in­ter­est stop be­ing ac­cu­mu­lated.

Too of­ten we have seen peo­ple bor­row a rel­a­tively small sum that has built up over many years.

I hope we can ac­tively pro­mote credit unions ( such as the one in Westwood and Raven­sthorpe) as an alternative to puni­tive in­ter­est rates and in­ap­pro­pri­ate lend­ing.

There’s noth­ing wrong with mak­ing a profit but not on the backs of des­per­ate peo­ple with no other op­tions.

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