The dangerous cycle of debt: How the House of Lords can do something amazing tomorrow

People often find themselves in a cycle of debt that they can't get out of - and at the moment, it's legal.

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Tomorrow, the House of Lords can do something very important for thousands of vulnerable people across country who find themselves fallen on hard times.

Peers will vote on an amendment to the Financial Services Bill which would cap the interest that companies can charge on short term payday loans. I can’t imagine that many of the Lords and Ladies who will vote tomorrow have had much cause to use these financial products. But I urge them with all my heart to support the amendment. Here’s why.

Karen* left school and our foster care at sixteen and worked hard to get a job and support herself. She had struggled at school and had special educational needs, but had made it through and was excited about her first job. One week she found herself a little short. She saw an advert for a payday lender and borrowed £100. When she came to pay it back, the debt took a bigger chunk out of her pay packet, so she borrowed from another lender. Before she knew it she was caught in an unrelenting cycle of debt - borrowing more and more from different lenders to pay back the previous month’s debt. Soon she owed a whole month’s salary. She moved out of her flat to escape the letters and the calls. She was effectively homeless, moving from sofa to sofa. This lifestyle started to affect her performance at work and she almost lost her job.

I stepped in to help her as soon as she told me her predicament. I was shocked at what I found. The companies had sold on the debts. The original loan agreements, amounts and start dates were almost impossible to track - even if I had the money the pay them off I wouldn’t have know who to pay. All the time interest was ticking up. The letters and phone calls were ruthless in their regularity and tone. It must be terrifying to deal with on your own, with no-one to turn to. Fortunately, her bank manager was very helpful and supported us in opening a simple account from which we could pay the money back. I have no idea what Karen would have done without having support around her. There are many people that don’t.

I’ve been working with Movement for Change going into communities to talk to people about the damage that these legal loan sharks can do to vulnerable people. I’ve heard some terrible stories from those affected. With wages stagnating and costs rising, poorer areas in the UK have become fertile breeding grounds for predatory lenders who can make huge profits from desperate people. I know people should take responsibility for their finances. But I have seen how these companies do business. The must be controlled and soon - before they do even more damage.

Tomorrow all eyes are on the House of Lords to see if they will vote to cap interest on payday lending. On Saturday I started a petition on Change.org as a last minute push to show peers the depth of feeling on this issue. I have been amazed by the response. Over 40,000 people have signed and I thank them very much. Karen’s case is now coming to an end, and we are thankful for that. But there are countless others out there on the verge of falling prey to the payday lenders. Let’s hope that peers vote the right way tomorrow.

*Karen's name has been changed to protect her identity

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