Whilst every other industry has suffered from the recession, legal loan sharks are making huge profits off the back of lending to people at excessive rates of interest – some of up to and over 16,000%.
Fines alone will do little to change the way they operate – one firm this year made £45m in pure profit and its main director took home a salary of £1.6m.
Giving the new regulator explicit powers to cap the charges that these companies can set would send a strong message to this industry about the costs for loans that should be considered acceptable. British consumers deserve the same protection from these companies that others around the world enjoy. Research shows 60% of those using payday loans were using the money to pay for household bills and buying essentials like food, nappies and petrol. By restricting what firms can charge, we could make a real difference to millions of families across the country right now who are struggling financially and are borrowing from these companies just to make ends meet. Just recently it was revealed 1 in 10 payday loan customers are going without food in order to be able to pay back their debts- with 5 million Brits now turning to payday loans it is vital to act quickly to prevent a personal debt crisis in our country.
A poll by ComRes for R3, the insolvency practitioners, shows overwhelming public support for action on this issue with 93% agreeing there is a problem with payday lending and 65% supporting a cap on the total cost of credit. Ministers claim they support the spirit of the amendment but refuse to back it – legal advisors are clear that without explicit powers to act, these companies will be able to challenge any regulatory action in the courts.
It is right that Medway Labour - led by Cllr Maple - have been working to lobby the Lords this week on a pay day loan amendment tabled by Lord Mitchell to the Financial Services Bill designed to help tackle legal loan sharking when it comes before you at the end of November 2012.