James Moore: Payday lenders who prey on the young should face the law, not the FCA

Outlook The payday lending industry was at pains to promote its newly minted code of practice before MPs yesterday. It claims it is reforming itself.

Unsurprisingly, the consumer lobby told a different story. So did a minister who, unusually, asked if she could appear before yesterday's hearing of the Business Innovation & Skills committee.

Jo Swinson has garnered a lot of attention recently as a result of her standing for 20 minutes during Prime Minister's Questions while heavily pregnant.

Small wonder that she was after an opportunity to put the focus on her day job.

Small wonder, given the ongoing controversy over payday loans, partly fuelled by her own department's research, that she was at pains to stress that the Coalition is doing something.

Ms Swinson explained that the Government has given regulators the powers to act because that would be quicker than legislating with all its tiresome requirements for consultations, green papers, white papers and so on.

Which is a neat bit of buck-passing, really, leaving the Financial Conduct Authority with a knotty problem.

Surprise, surprise, it has taken a rather circumspect approach. It's true that the industry will have to behave a bit better, focus much more on whether its customers can afford to repay their loans and limit the practice of loans rolling over.

But capping interest rates or charges? Erm, no. Largely thanks to one University of Bristol study, which fretted about the danger of loan sharks if the sector was squeezed, the FCA is wary – despite caps being commonplace elsewhere, including in the United States.

Needless to say, that study was published before the sector's explosive recent growth. With the help of a multimillion pound advertising blitz, it has managed to create a mass-market for a product where one didn't exist previously.

Small, high cost, short-term loans are nothing new. But their assault on our television screens is, as is their use of the internet to target a youthful demographic.

The recession has left much of this demographic facing a sharp rise in freelancing, short-term temporary contracts with employers and zero hours contracts.

The vast number of people bouncing between insecure employment and unemployment inevitably find it difficult to manage budgets and are prey to the blandishments of payday lenders, who target daytime TV while they are left sitting at home waiting for the phone to ring.

The ads do precious little to warn of the risks.

And those risks go beyond usurious pricing. If you transact with the Cash Lady, Mr Lender, Wonga – note the cutesy names – it will appear on your credit score. Ray Boulger, the mortgage expert from John Charcol, thinks that banks could very easily take that into account when considering applications for mortgages or other credit, taking the view that only someone who couldn't manage a budget would be willing to pay the sort of charges levied by such firms as Wonga. Once you become a Wonga customer, you may be stuck with them.

It's yet another problem with this industry, and he is right to raise it. As such, Ms Swinson's approach is pathetically inadequate. Regulators should do more, but they may require some political cover which they aren't getting. So they're falling back on Bristol University's study and promises to make the industry do better. Meanwhile Ed Miliband, who raised the issue again yesterday, is beginning to make real capital out of it. You can't really blame him.