Simon Read: Time to crack down on payday loans

 

Payday loan companies were targeted by MPs this week. An all-party Commons Select Committee poo-pooed plans to tighten up the credit industry's codes of practice. They, probably rightly, pointed out that self-regulation isn't working.

Instead, the MPs demanded new laws to stop companies offering high-cost, short-term credit exploiting the vulnerable. Among their demands were calls for improved transparency so that borrowers would have a clear idea of the type of loan they're taking out and the scale of penalties if they're can't repay on time.

MPs also said it's time lenders were forced to demonstrate they have actually checked that potential borrowers can afford to repay their loans. Indeed, I'd go further and make the high-cost credit lenders write off any loans where they haven't ensured that borrowers can afford the debt.

There was also a call for a limit on the number of times payday loans can be rolled over. Some firms claim that they already operate such a system, but that doesn't seem to stop people getting granted new loans month after month.

One problem, of course, is that it's easy for borrowers to simply go to another lender if their existing firm turns them down. For that reason the payday lenders should set up a central database of borrowers and share information to stop multiple loans being taken out by people who can't afford help. Hard-up people need help, not just rising debt.

The MPs also called for continuous payment authority orders on borrowers' bank accounts to be limited, and debt-collection charges capped. The latter is crucial as debt collectors can add hundreds to a bill, making it even harder for people to get their finances back on track.

There are two more items among the proposals worth mentioning. First was a call for the regulator to be given the power to ban harmful products. Second was the need for a faster system to suspend the licences of dodgy companies. This is paramount. Under the current system, it can take up to two years for a payday lender to be shut down.

We only have to look at the example of rogue credit broker Yes Loans which had its credit licence revoked by the Office of Fair Trading on Thursday. Yet the dodgy lender has 28 days to appeal, during which it can continue to trade and flog its expensive deals.

This is madness. Dodgy practices must be dealt with speedily, rather than firms given notice. The unscrupulous lenders will simply ratchet up their activities and fill their boots as much as they can during the notice period.

The rules under which loans firms can operate are already reasonably tight, but must be tightened further. And the regulator must be given the power to act instantly if they catch anyone breaking the rules.

Two weeks ago in this column I called on the banks to play fair with customers and contact all those who may have been victims of the payment protection insurance (PPI) mis-selling scandal. With their usual flair for ignoring the needs of customers, the banks did nothing.

But the City watchdog – the Financial Services Authority – did pay heed and has written to banks, insurers and brokers ordering them to write to 12 million PPI customers who have yet to make a claim, to tell them they may be due a payout.

The move may lead to banks having to find an extra £6bn, but I have no sympathy. They shouldn't have flogged the often useless cover in the first place. Then, when the scale of the mis-selling was revealed, they should have bitten the bullet right away, rather than using legions of lawyers to delay paying out.

s.read@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before