In our briefing we address the powers that the new Financial Conduct Authority will have, which we think will be central to tackling the undisputed serious consumer detriment caused by payday lending in the UK. However, the Scottish Government and Scottish Parliament have a number of powerful levers at their disposal which we believe are equally central to tackling the scourge of payday lending in Scotland.
GLC has made the following recommendations to improve consumer protection against payday lending in Scotland:
> Investment in Scottish credit unions to enable them to offer equivalent products to ‘payday loans’ on a fair and affordable rate of interest. HM Treasury is currently consulting on raising the 2% per month interest cap on credit unions, and we support an increase to enable credit unions to offer a fairer alternative to payday loans in Scotland.
> Improving our debt relief remedies so that Scots entrapped in a cycle of dysfunctional payday loan interest and charges can be untangled swiftly and fairly – Govan Law Centre has proposed a Fast Track or enhanced Debt Arrangement Scheme for this purpose. This could be done quickly by Scottish statutory instrument under existing legislative powers.
> Education is a key part of the solution, and we believe the Scottish Government should deploy resources to mount an educational campaign to help Scots avoid the pitfalls of payday loans. Such a campaign could be tied in to awareness raising of alternative forms of short-term credit (e.g. through credit union products) and the availability of enhanced forms of debt relief.
> We would conclude by noting that if no action is taken on these issues in Scotland, then the consumer detriment caused by payday loans will escalate from April 2013 with the introduction of the bedroom tax. Scottish tenants faced with eviction from the effect of UK Government under-occupancy charges to housing benefit will turn to payday loans, which will exacerbate their problems. Govan Law Centre has advocated a ‘no eviction for bedroom tax arrears’ policy, with bedroom tax arrears being treated as an ordinary debt. This could be achieved by a minor amendment to the Housing (Scotland) Act 2001.