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

Share
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 moneysupermarket.com.

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. Wonga.com, 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

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

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Ashdown Group: Front-End UI Application Developer

£30000 - £40000 per annum + Benefits: Ashdown Group: Front-End UI Application ...

Day In a Page

Read Next
 

Errors & Omissions: how to spell BBQ and other linguistic irregularities

Guy Keleny
 

South Africa's race problem is less between black and white than between poor blacks and immigrants from sub-Saharan Africa

John Carlin
Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...