Monday, 25 November 2013

Why the government acted on payday loans

I listened over breakfast to strange interview with George Osborne, the Chancellor of the Exchequer, with an incredulous Evan Davies about payday loan companies.

Davies was incredulous because an ostensibly free market Chancellor has prejudged his own process to decide to cap the charges and interest rates Wonga and their like can charge.

Osborne replied, quite correctly, that free trade means regulated markets – as indeed it does. He replied that other countries cap the interest rates of their high cost lenders, notably in the USA.

In fact, most US states employ real-time database, like the one provided by the US company Veritec, to provide the platform for payday lenders.

Then it is simply impossible to take out two payday loans at the same time from different companies, and it is impossible for the loan companies to ‘interpret’ rollovers in any lax way they can think of.

It is also quite possible for them to make a profit, as they do in New York, where the loan rate is capped at 25 per cent (plus charges).  A bit different from the 5,000 per cent plus APR that some companies extract in the UK.

So why the shift now?  I’m always surprised how little the BBC political forces know about what is going on behind the scenes at Westminster if it doesn’t involve the Commons front benches.

My guess is that this apparent volte face began with pressure from the Lib Dem Treasury team in the House of Lords – the team which also cajolled the banks into revealing the geographical spread of their lending down to postcode district level (which will be published in January).

Baroness Kramer is now in government as an effective transport minister, and her place has been taken by Lord Razzall.  But her colleague Lord Sharkey has been keeping up pressure on ministers to cap payday loan rates, and the Lib Dem trade minister Jo Swinson – whose responsibility this falls under – has evidently been effective too.

The efforts of Archbishop Justin Welby and campaigners like the Community Investment Coalition have also made an important impact.  In fact, this is a real coup for the Church of England and a measure of just how terrified they are of Welby at No. 10.  But there were political reasons too.

The immediate one is that Sharkey had put down an amendment to the Financial Services Bill, due for debate as soon as Wednesday, and that would have capped payday loans - and the last thing ministers would have wanted was for this to be lost, only to have an equivalent Labour amendment passed.

The implication is that, although Osborne got the heat this morning, this is an unheralded Lib Dem success. Quite what the total cap will be set at remains to be seen, but the principle is absolutely vital – capping the amount of money that is being leeched out of the poorest communities.

1 comment:

Ian Marrow said...

I wonder when the Government will act against the Halifax/Bank of Scotland which is proppedup by taxpayers money.
They charge £1 a day interest on agreed overdrafts, which doesn't sound much,but last month I was charged £18 for an overdraft that never exceeded - and was usually far less than - £251.67. My maths may be a bit shaky but that gives an annual rate of 2610 per cent.How is that different from a pay day loan?
Ian Marrow