Loan Companies: Interest Rates - 17 June 2010
Asked By Baroness Scott of Needham Market
To ask Her Majesty’s Government whether they plan to regulate loan companies charging high rates of interest.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, my noble friend’s Question is timely as the Office of Fair Trading has just released the findings from its review of the high-cost credit sector. Many noble Lords will be aware that I am a long-standing campaigner for consumer rights in this area, and I see this review as an opportunity for Government to reflect on these very high rates of interest and consider whether there is a better way for us to approach this market.
Baroness Scott of Needham Market: Is my noble friend aware of the growing number of companies, some of which advertise on television, which offer short-term loans at extremely high rates of interest—in one case the APR is 2,689 per cent—plus an arrangement fee? Does she share my concern that a small short-term loan could very quickly turn into a very large lifetime millstone?
The debate that followed touched on issues of accuracy in advertising, as well as the validity of using APR as an indicator, but I would pick out Michael Martin's contribution, seeking support for community-based credit unions as a means of increasing the options available to those on the financial margins, as a potentially important solution to the problem of lack of choice and information in the short-term credit market.
Meanwhile, as indicated in Baroness Wilcox's answer, the Office of Fair Trading published its review of high cost credit. I admit to some surprise that the sector is worth £7.5 billion, but suspect that it is growing fast. Working in an environment where many of my colleagues earn less than the national average salary, I know that a number of them have, at times, lived from pay cheque to pay cheque, and with this emerging option to bridge the occasional gap, I suspect that some of them may have considered using payday loans.
I'm not keen on introducing onerous restrictions on these small-scale lenders, so the OFT's suggestion that the key issues revolve around enhanced choice and better information as to the options available appeals to me. However, it is a subject which lends itself to populist campaigns by the press, and I would be surprised if we didn't see further debate in the coming years.
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