A former Conservative minister has taken a job advising a firm of payday lenders that charges customers annual interest rates of up to 1,734 per cent.
Sir Gerald Howarth, who was sacked as a defence minister by David Cameron in last year’s reshuffle, recently accepted the part-time consultancy role from the owners of QuickQuid.
QuickQuid, the British subsidiary of CNU Holdings to which Sir Gerald is contracted, is facing an investigation by the Competition Commission along with other payday lenders. In March, the Office of Fair Trading (OFT) named it among 50 companies accused of “widespread irresponsible lending”. The OFT said the firms were reliant on lending to customers who could not afford to pay their loans back on time. Almost half of lenders’ revenues came from loans which had been rolled over or refinanced.
A second investigation into the payday loans sector is also under way by the Financial Conduct Authority which is examining rollover loans and some of the exorbitant interest rates charged.
In an official declaration to Parliament released at the end of last week, the Aldershot MP described his job as “advising on the effects of legislative changes and other matters”. He expects to be paid between £15,000 and £20,000 for his work.
In the register of interests, Sir Gerald makes no mention of QuickQuid. He describes himself as a “Consultant to CNU Online Holdings LLC (Enova), of 200W Jackson Blvd Suite 500, Chicago IL 60600”, which trades as QuickQuid.
Its latest accounts show that the firm’s UK revenue has rocketed from £58m in 2010 to £196m in 2012 as a result of rapid expansion into the unsecured loans market sold over the internet. Its website offers cash loans within 10 minutes of approval. However, someone borrowing £200 for a month would have to pay back £260 and a customer borrowing £1,200 over 10 months would have to pay back £2,831.34.
Daniel R Feehan, chief executive of QuickQuid’s parent company Cash America, warned in the company’s annual report that profits were under threat from plans for tougher UK lending rules. “The most frustrating part of this process is the uncertainty it creates – making strategic planning difficult and promoting doubt for investors.”
Sir Gerald’s consultancy was raised with David Cameron by the Labour MP Dave Watts at Prime Minister’s Questions. Last night, Mr Watts said Sir Gerald’s involvement was unacceptable. “I don’t think anybody should be getting involved in a payday lender. It is very regrettable that an MP would want to take money from people who cause so much misery to constituents.”
The Labour MP Stella Creasy, who has led a campaign against high-interest internet lenders, called on Sir Gerald to “examine his own conscience”. “I have helped people who have fallen into debt after taking out a loan from QuickQuid. I have seen the misery it causes. I am not trying to ban these companies but merely introduce some sort of cap over what they can charge. It is up to Sir Gerald to examine is own conscience if he wants to act on their behalf.”
Sir Gerald said he had taken up the role because it was an area in which he had a long-standing interest. “For 20 years, I was consultant to the Consumer Credit Association,” he said. “I think it is a business that is not well understood by people who do not have need of that kind of finance – people for whom the banks offer no service. I am very happy to help out.” He defended the interest rates charged by payday lenders, pointing out that annual interest rates were not a good way of assessing the total cost of a loan. “If you go and try and borrow £150 from a bank, first and foremost, they won’t lend you that kind of money and, if they did, they would charge you an arrangement fee. The APR on that would be very large as well.”
Last night, QuickQuid was more circumspect on his role. “The arrangement with Sir Gerald was not intended to be long term and will be coming to an end. We are highly appreciative of Sir Gerald’s insights, expertise and knowledge and wish to thank him for his advice.”