Shake up consumer credit rules
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.