Simon Read: The battle to beat legal loan sharks hits Westminster
Saturday 06 November 2010
The battle against legal loan sharks hit Westminster this week when the Labour MP Stella Creasy's Consumer Credit Bill got the nod for a second reading next February. More excitingly, Stella has secured a debate on the Bill next Tuesday in Westminster Hall, where the Government will have to respond to her proposals.
To remind you, the Bill suggests a cap on the total lending rate that can be charged for providing credit, including any late payment and default charges. Its aim is to crack down on the so-called legal loan sharks – such as doorstep lenders – who add excessive charges on to high interest rates so hard-up borrowers can end up owing twice as much as they borrow.
On Thursday, John Denham, the shadow Secretary of State for Business, Industry and Skills, added his support to the campaign. "The Government has already made it clear that it is willing to look at the cost of borrowing on credit cards and store cards in its Credit Review, but seems hesitant to commit to finding ways of helping those for whom such sources of borrowing are out of reach," Denham said. "I hope they will listen to the points being made about the need to act to protect those on low incomes too and publicly confirm that this will be considered in the Credit Review."
But the Bill has been criticised by the Finance & Leasing Association, which represents a range of lenders. The FLA has warned that restrictions on legal lenders could force some to raise rates and push others out of the market. That, in turn, could leave many hard-up people with little option than to resort to unscrupulous illegal loan sharks, who often use bullying and physical intimidation on the poor unfortunates who fall into their clutches.
Fiona Hoyle, head of consumer finance at the FLA, said: "Coming on top of all the recent new regulation, further restrictions will have the unintended consequence of forcing legitimate and responsible lenders to leave the market, or raise their prices, or both. We hope MPs will instead focus on the illegal loan sharks who prey on people in financial difficulty."
If there is a danger that new laws could, effectively, unleash the dodgy loan sharks, then the Government needs to tread carefully. But that doesn't mean it should allow legal companies to continue charging outrageous rates and fees. There is a need for short-term loans, but anyone forced to turn to a payday lender should not face the risk that they're entering a cycle of debt that they will struggle to escape from. A cap on the amount that lenders can charge – as proposed in Stella's Bill – would ensure that people don't end up taking on a lot more debt than they can really afford. But the Government must work with the loans industry to ensure that any proposals don't force legitimate firms out of business, leaving the market to scary illegal sharks.
The Bill also aims to improve access to the service that credit unions provide, by integrating them with the Post Office network. I'll be interested to hear the Government's view of that, especially in light of its recent proposals to sell off the Post Office.
Why haven't more people switched their current account? According to Consumer Focus, just 7 per cent of people have switched current accounts in the past two years, and three-quarters have never even thought of switching. There are lots of reasons to switch, not least to get a better deal, such as high-paying interest on credit balances, or lower charges on overdrafts. You could even consider switching to an ethical bank to avoid the probability of your cash being used to fund weapons or drugs (see my feature this week on pages 60-61 for more on this).
In fact, many people are unhappy with their bank but still don't switch. There's a presumption that things will be just as bad elsewhere or that moving will be a real hassle or, worse, hit their credit rating. These days, there's little hassle and banks must transfer accounts quickly and efficiently. As for your credit rating, switching accounts won't have a great effect on your score.
More worrying is the fact that some people have a kind of loyalty to their bank, simply because they've been with them for years. This is no reason to stick with them, as Sarah Brooks, head of financial services at Consumer Focus points out. "The unacceptably high level of bank complaints suggest that loyalty is often misplaced. Until people start voting with their feet, banks have little incentive to raise their game and consumers may be missing out on better deals and service."
Consumer Focus wants banks to introduce clear, transparent and comparable charges and pay goodwill payments for errors or delays in switching. That's something I'd delight in seeing too but, let's face it, chances are slim.
Brian's royal appointment
brian cunnock (pictured with the Duke of York) has just retired from the Yorkshire Building Society. He joined, aged 16, in September 1964 and worked for a number of departments until leaving this month on his 63rd birthday. I trust he has a happy and healthy retirement but I'm saddened at the thought that we may never see his like again. There's slim chance now that any of us will work loyally for 46 years for the same business.
Derek Pain: I'm cautious, but remain one of the few bulls in the market
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
- 1 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Rashida Jones speaks out against male-centric porn saying 'women should have sex and feel good about it'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
King Abdullah dead: We can't afford not to hold Saudi Arabia's royals to account
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion