Goodbye to payday loans. But good riddance?

The news that the Government will be taking steps to restrain payday loan companies appears to be generally welcomed. As Ros said more than three years ago, when asking the Government whether they planned to regulate loan companies charging high rates of interest;

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?

At the time, the Minister, Baroness Wilcox, noted the dilemma that previous Governments had faced in deciding whether or not to act. More than four months later, Stella Creasy introduced her Private Members' Bill to regulate the industry, a move which, eventually, led to yesterday's announcement by George Osborne.

I have, in the past, been sceptical about payday loans, worrying as I do about the ease with which some people have accumulated debts that they cannot service, without any great scrutiny. Others have noted that, if used sensibly, they can be a valuable way through which individuals can get through difficult, short-term, crises.

There is doubtless an element of truth in both arguments, which I now acknowledge. As a liberal, I believe that people should be trusted to make decisions that suit them and that, by removing, or restricting the availability of payday loans, their freedom is restricted unduly. However, choice, and the freedom that it implies, does not truly exist if the ability to evaluate the risks and benefits of any transaction is not present.

Restricting the freedom of some people against protecting those who need protecting is a very difficult choice, especially given the impact of unsustainable debt on some of society's most vulnerable people, and the likelihood that the community, through government, will have to step in.

Clearly, in order to survive within the restrictions to be laid down, the various payday loan companies will be obliged to change the way they do business, which will restrict their profitability and possibly force them out of the industry altogether. The service they offer will become less easily accessible and, possibly, less useful to those capable of making informed choices.

It seems that, whatever government does, there are casualties. And, regardless, the issues that lead people to turn to payday lenders will still exist. Perhaps it is time for government to look at ways to help people to manage their finances more effectively, and to encourage the growth of credit unions and friendly societies, for fear that loan sharks will surface once more in our towns and cities...