Stella Creasy: The poor are at the mercy of the money sharks

This industry benefits from a lack of legislation, which means that companies can charge eye-popping APRs of 4,500 per cent or more

Related Topics

With fairy lights up in shopping centres and crackers on offer in supermarkets, Britain is already gearing up for Christmas. In this tough economic climate, many retailers are hoping the festive season will be a chance for the public to forget their financial difficulties. And, for some companies, the millions of Britons now struggling to make ends meet are an early Christmas present.

As banks stop lending and inflation eats away at the pay packets of those lucky enough to still be in work, the past year has seen an explosion in high-cost credit lending in the UK. Payday loan companies and hire purchase stores now dominate town centres around Britain, offering astronomical interest rates on loans to those who have few other options to cover their outgoings. Last year, the payday loan sector was worth £1.7bn, a fivefold increase in the past few years. The pace of expansion is accelerating, too. Between April and May this year alone, there was a 58 per cent rise in numbers of people applying for a payday loan via

But this industry benefits from a lack of legislation which means that companies can charge whatever they like for credit, leading to eye-popping APRs of 4,500 per cent or more, and record profits., the best-known online payday lender, quadrupled its turnover to £73.8m last year, generating £15m for its shareholders. Meanwhile, Dollar Financial, a US-based lender that owns The Money Shop, has expanded from just one store here in 1992 to more than 400 outlets across the UK. Next year, it plans to quadruple the number of stores it operates on Britain's high streets. Its chief executive recently told investors that the company's big push into recession-hit UK market had only just begun and that its target was to reach a "full country build-out" of 1,200 stores.

Across Europe and North America, governments have responded to the growth of the high-cost credit industry with restrictions on what may be charged for credit and measures to prevent the repeated "rolling over" of loans, a practice which causes serious financial detriment for consumers. These countries have lower levels of illegal lending, too, dispelling the myth that capping credit costs pushes consumers into the hands of loan sharks.

Here, our Government takes a different approach, andis seemingly impervious to the evidence of the problems being faced by millions of consumers. Citizens Advice reports a fourfold increase since 2009 in the numbers of people coming to them with debt problems after taking out payday loans. These are not people borrowing for luxuries: the Debt Advice Foundation details how one in four people who take out a payday loan need the money to buy food or essentials for their household, with 44 per cent using them to pay off other debts.

Paying for Christmas this year will be a tough proposition for millions of households across the country. New research from the Consumer Credit Counselling Service has identified 6.2 million households as financially vulnerable, and the Resolution Foundation claims that the average household will be as much as 7.5 per cent worse off next year than it is this year. Any increase in interest rates or further rises in inflation could see even more families tipped into destitution and forced to turn to these firms. While some customers are able to use these loans to manage their finances, many more find that what is supposed to be a short-term fix quickly becomes a long-term debt.

Regulating the costs of credit would make a real difference to squeezed household budgets. That's why for more than a year now I have been proposing legislation to introduce a range of caps on the charges these firms can levy. Based on what we know works in Europe and America, this would prevent the worst legal loan sharks from exploiting vulnerable people's desperation for cash, and allow the more responsible lenders to operate in a legitimate environment. The proposal has the support of a broad coalition of debt experts, consumer groups and MPs. Furthermore, a recent survey showed that 73 per cent of the public support caps on the cost of credit.

In response to this growing tide of pressure, the Government proposed commissioning research into the issue. It will take at least a year to report back, leaving vulnerable consumers in the lurch as Christmas approaches and with no guarantee of action as a result. An e-petition has been tabled calling on the Government to act now to end socalled legal loan sharking. Signing it will help send a clear message that the British public wants the same protection enjoyed by others across the world. With ministers refusing to meet me to discuss the matter, only the public can hold them to account for the consequences of this delay to families this winter.


Stella Creasy is Labour MP for Walthamstow

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Business Development Executive / Digital Marketing Executive

£26000 - £35000 per annum: Recruitment Genius: A luxury beauty house with a nu...

Recruitment Genius: Housekeepers - Immediate Start

£8 per hour: Recruitment Genius: This company are currently recruiting new exp...

Recruitment Genius: Head Concierge

£25000 - £28000 per annum: Recruitment Genius: This award winning Property Man...

Recruitment Genius: Content, SEO and PPC Executive

£20000 - £25000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Day In a Page

Read Next

Clean energy should be our mission to the moon

Martin Rees
Angela Merkel and David Cameron say goodbye in the Bundeskanzleramt after their meeting in Berlin, Germany, 29 May 2015  

The complacency of Europhiles could lose them the referendum

Steve Richards
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral