MPs have demanded a new law to rein in companies offering high-cost, short-term payday loans to stop them exploiting vulnerable people.
In a report published today, the all-party Commons Select Committee on Business warns that tightening the credit industry's codes of practice will not work and urges the Government to consider statutory controls on payday loan and credit management firms. Their inquiry follows campaigns, including one by The Independent, for a crackdown on lenders accused of preying on people such as benefit claimants and then "rolling over" loans they were never likely to pay back, so they pile up huge debts.
The committee called on Tony Hobman, chief executive of the Money Advice Service funded by financial firms, to take a cut in his £350,000-a-year pay and bonus package, which includes a £250,000 salary. "At a time of pay restraint, we do not believe the head of a comparatively small organisation should receive a salary £100,000 in excess of the Prime Minister," says its report. "The perception of such extravagance does not sit easily in an organisation tasked with helping those in debt."
The MPs are "confused" by the Government's claims that face-to-face debt advice would not be reduced even though legal aid for such help is being cut by 75 per cent. They express concern that the decision to remove the Social Fund, which provided emergency loans, could drive people into the arms of loan sharks.
Adrian Bailey, the committee's Labour chairman, said that at a time when growing numbers of people are relying on payday loans and debt management services to make ends meet, the industry remained "opaque and poorly regulated." He criticised the Government for not acting on a consultation exercise that ended almost a year ago, and called for "swift and decisive action to prevent firms abusing the needs of such a vulnerable customer base."
The committee says that credit adverts should no longer show the APR (annual percentage rate) but should make clear the total cost, including interest and fees. "If it cannot be demonstrated that self-regulation can deliver the necessary protections then the Government will need to intervene with statutory regulation," says the report.
Other demands put forward by the MPs include higher licensing fees for higher-risk credit firms and a fast-track procedure for suspending credit licences.