Glasgow fights back against predatory payday lenders

Payday lenders are under attack in Glasgow like nowhere else in the UK, writes Phillip Inman, Economics Correspondent of The Observer and The Guardian. 

Without waiting for Westminster politicians to tackle the burgeoning instant loan industry, Glasgow City Council has banned all access to Wonga and its lookalikes in libraries and colleges. Glasgow's trading standards officers tour shopping parades to check on offers for loans agreements and APRs that breach the Consumer Credit Act.

Mike Dailly, Principal Solicitor of Govan Law Centre, is challenging the contracts that allow payday lenders to snatch their customers' bank-account funds, while also defending people who, in the most extreme cases, take out £200 loans only to find their home being repossessed.

The crackdown coincides with the biggest promotion of credit unions anywhere in the UK. As an alternative to banks, these unions may conjure up an old-fashioned image in the minds of many people, but in Glasgow they are taking to the high street and can be found inside the swankiest shopping centres. One in four Glaswegians now have a credit union account. 

According to the council treasurer Cllr Paul Rooney, this go-it-alone approach is necessary to scale down an annual £57m binge on payday loans, door-to-door credit and pawnbrokers that affects one in five of the city's population. In November, the council will begin allocating credit union accounts to new secondary school pupils and handing them £10 toward their savings.  Read the full story in The Observer here.

Glasgow fights back against predatory payday lenders

How to tackle payday lenders: GLC's new Payday Loan Survival Guide

With 90% of the payday lending market failing to comply with consumer protection laws to the severe detriment of vulnerable consumers, Govan Law Centre (GLC) believes there is now an urgent need to help people in the UK fight back against payday lenders.

The payday lending market was recently referred to the Competition Commission, and in 2011/12 there were 8.2m new payday loans made in the UK alone. There is every expectation that this number will continue to rise, and with it the financial exploitation of consumers across Great Britain and Northern Ireland.

GLC has therefore decided to publish a free 'Payday Loan Survival Guide' for consumers across the UK. Our new guide explains how consumers can take back control of their finances, challenge unfair interest and charges, stop payday lenders from emptiying their bank accounts, and pay back debts legally due on a reasonable and affordable basis. The guide has been written by GLC's Principal Solicitor, Mike Dailly.

Govan Law Centre's new Payday Loan Survival Guide is designed for all consumers across the UK in difficulty with payday loans, and can be downloaded here (as a PDF) for free.

Our guide is free. It has been produced without funding, and we will be posting a link where charitable donations to GLC can be made by those who would feel able to help our work in this field.

How to tackle payday lenders: GLC's new Payday Loan Survival Guide

GLC welcomes OFT's referral of the payday lending industry to the Competition Commission

The Office of Fair Trading (OFT) has today referred the UK's payday loan market to the Competition Commission for a market investigation. This will result in extensive evidence being ingathered with the Commission having the ultimate power to radically reform the way the payday lending industry behaves. For example, the Competition Commission's investigation into the selling of Payment Protection Insurance (PPI) resulted in a ban on UK banks from selling PPI alongside loans.

The OFT's own investigation into payday lending last year found that there was widespread consumer detriment and exploitation, an endemic failure for companies to adhere to existing legal rules and protections, with one in four loans not being paid back on time, incurring extra charges for roll-overs, with many consumers being entrapped with spiralling debts.

Govan Law Centre (GLC) welcomes the OFT's Competition Commission referral today but notes that it is not unlikely for the market investigation to take up to two years to reach its final stage, meantime UK consumers will continue to be exploited by usury payday lenders with interest rate charges, such as Wonga's, of 5,853% (APR).

GLC believes much more work needs to be done to tackle the failure of many payday lenders to comply with consumer credit law. In Scotland, the Scottish Government is in a prime position to intervene in this market by enabling credit unions to develop their services by offering accessible and fair 'payday loans', while using public education to warn people of the 'health hazard' of payday lenders. GLC would like to see the new full cost of credit capping power being targeted at this market once it becomes available.

The typical Competition Commission market investigation looks like this:

GLC welcomes OFT's referral of the payday lending industry to the Competition Commission

GLC calls for Scottish Government to deploy its powers to mitigate the scourge of payday lending in Scotland

GLC has prepared a Scottish Parliamentary briefing for all MSPs in advance of this afternoon's debate on payday lending in Scotland ('Cost of Living' debate). Our briefing is available here as a PDF.  We believe that the UK payday loan market is predatory, usury, dysfunctional and immoral. 

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.[1]

> 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.[2]  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.[3]

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[1] http://www.hm-treasury.gov.uk/consult_creditunion_cap.htm

[2] http://govanlc.blogspot.co.uk/2012/09/new-fast-track-debt-arrangement-scheme.html

[3] http://govanlc.blogspot.co.uk/2012/11/cross-party-agreement-to-consider-no.html

 

GLC calls for Scottish Government to deploy its powers to mitigate the scourge of payday lending in Scotland