This is an historic moment, but more could be done right now to tackle rip off lenders

After fifteen years of campaigning on the issue, we are delighted that Government today included provisions within the Financial Services Bill to provide regulators with the power to cap the cost of credit agreements.

The Government amendment sets out a general power for the new Financial Conduct Authority to make rules that:

• Prohibit the charging of certain types of fees which it considers to be unacceptable; and


• Prohibit the charging of costs above an amount which it specifies as unacceptable.

Further to this, the FCA is to be provided with a power to prohibit ‘rollover’ lending, which is commonly used by payday lenders.

In the event of a breach of any such rules, agreements will be unenforceable, with any payments made by the borrower recoverable from the lender, and the lender will be liable to pay compensation to the borrower.

Welcoming the Government amendment, Damon Gibbons, said:

“This is an historic moment. After fifteen years of pointing out how money lenders have been exploiting the poorest households we finally have cross party agreement that direct action to cap prices and prevent other abuses is needed . The legal loan sharks are now on borrowed time. However, we have to move forwards as a matter of urgency and the FSA should now launch a consultation to help shape the new rules as early as possible.

But more can and must be done now to protect consumers. The FCA will not be taking on the responsibility for the regulation of consumer credit until 2014. In the meantime, and faced with a possible future crackdown, many money lending companies will inevitably take one last opportunity to rip off some of the poorest households in the country.

To prevent this, the Office of Fair Trading should immediately revise its Irresponsible Lending Guidance by indicating a level of credit costs the charging above which it will take as prima facie evidence of an irresponsible lending business model. We recommend that these ‘benchmark costs’ be initially set at £20 per £100 lent for payday loans and £65 per £100 lent for door to door money lenders.

It is now six years since the Competition Commission found that home credit lenders were making excess profits. At the time of the Commission’s inquiry, Provident Financial was charging £65 per £100 lent. It is now charging £82 per £100 lent, yet its cost of capital have not increased significantly and, with improved data sharing in place across this sector it has better information available to it to assess the risk of default. By our calculation, Provident has made at least £30 million in excess profit in the past two years alone. Insisting it reduces its prices back to the level charged in 2006 would be a good start on delivering on the promises to tackle the money lenders made in Parliament today."

Celebrate the victory! But now the hard work begins

Time is running out for legal loan sharks in the UK. On Wednesday night the Government finally decided to provide the new regulator, the Financial Conduct Authority (‘FCA’), with the power to cap prices in the consumer credit market. It has taken a long, hard, campaign to get here.

In the winter of 1998, whilst working as a money adviser in the West Midlands I was asked to meet a group of lone parents to talk about the problems they faced in the run up to Christmas. They told me about the way many of them were targeted by door to door money lenders like Provident Financial, and how those loans, which carried a cost of £65 for every £100 they borrowed, meant they subsequently struggled to heat the home and in some cases feed themselves properly. They told me how a loan taken in haste to buy Christmas presents for the kids would rapidly lead to a cycle of borrowing to pay off borrowing; to hopelessness and depression. It was that group of lone parents who convinced me that something needed to be done.

Working with other money advisers we managed to get some media attention that year and that brought with it the support of a great many local church and community groups who were also starting to take action on the issue. In 1999, Niall Cooper, the National Co-ordinator of Church Action on Poverty and I joined forces to formalise the campaign giving it the name ‘Debt on our Doorstep’. We had two simple aims – to get an interest rate cap and force the banks to provide affordable credit to people on low incomes. And, we set ourselves two years to get the job done.

Over all the years since, we never swayed from these basic aims, and somehow we just kept going. The campaign has been as well informed as any could be. My thanks go in particular to Professor Udo Refiner in Germany, and Professors Iain Ramsay and Toni Williams here in the UK, but we have been aided by colleagues and contacts too numerous to mention, drawn from all around the world. Their willingness to talk through how caps work in practice has been invaluable. The campaign has also remained connected to the people most affected by the problem throughout, and London Citizens and Church Action on Poverty both deserve particular credit for ensuring this has been the case. And, of course, over the past two years we were fortunate to have a simply amazing advocate for the cause in Stella Creasy MP.

But whilst we can celebrate the fact that the new regulator will be able to take action, we also have to mourn the fact that the money lenders have been ruining the lives of our friends, families, and neighbours for all the time that Government failed to act. The fact of the matter is that things have been getting worse not better. Provident Financial, who as a result of our campaign, were found to be making an excessive level of profit by the Competition Commission in 2005, now charge £82 for every £100 they lend. And in the years since we started our work we have witnessed an explosion of payday lenders charging astronomical rates of interest with virtually no checks on whether people can afford to pay. The writing was on the cards for the industry when, earlier this month, albeit after years of slumber, the Office of Fair Trading finally stood up for low income consumers and released damning evidence of the lenders failure to comply with even the existing, and frankly woeful, rules in this respect.

We must ensure that the FCA does a much better job. Simply changing the name on the door will not do. The FCA must now set out a clear plan of action to determine how it will use its new powers – not in concert with the lenders to enable them to carry on business as usual – but with us, and to deliver justice for hard up households across the country.

Because justice is what this campaign has always been about. We know that the lenders borrow their money from the banks and financial markets at rates which are currently on the floor. They lend it on at sky high rates to the poorest. The FCA must now be prepared to open the box and reveal just how much money has been going from the banks to the money lending industry. Although Government’s decision to give the FCA a power to cap rates has grabbed the attention, we also won another significant victory over the Financial Services Bill this month: as Government has also agreed to require the FCA to consider how well people can access affordable credit when carrying out its duties, and has indicated that it will require banks to release details of how much lending they are doing in our poorer communities.

So after all this time both of Debt on our Doorstep’s aims are now on the verge of being realised. What next? Work harder; follow the money, and hold the FCA to its task.

Damon Gibbons 29/11/2012, Leicester