Payday lenders, government ministers and industry regulators will meet for the first time next week at a summit on the payday loans industry, called by Consumer Minister Jo Swinson.
The news comes in anticipation of a decision by the Office of Fair Trading (OFT) expected later this week, on whether payday loan companies should be referred to the Competition Commission. In March, the OFT said it had found “deep-rooted” problems with the way payday loan firms operate; they could be referred to the Competition Commission on the grounds that they are competing on the speed of being offered a loan, rather than its cost.
According to a recent report by the Commons Public Accounts Committee, about 2 million people in the UK use payday loans. Usually, someone will use these firms to borrow a few hundred pounds to see them through until their next payday. However, there have been cases reported in which borrowers already struggling with debt have been allowed to roll over their loans. This has resulted in the interest compounding, and their debts spiralling out of control.
Jo Swinson, Consumer Minister, said: “Far too many times consumers have been lured into taking out products that are not right for them, that are not the right financial product.” This includes instances where the money borrowed was not for an emergency, and those borrowing could not afford to pay it back.
The new regulator, the Financial Conduct Authority (FCA) will take over regulation of the industry from the OFT next year, and Swinson added that the summit will aim to “make sure the FCA rules are robust and strong and what is needed to stamp out the rogue and irresponsible behaviour of some parts of the industry.”
Among those attending the summit will be Sajid Javid, a Treasury minister, as well as representatives from industry regulators, the Department for Work and Pensions (DWP) and the Consumer Finance Association (CFA) - a payday lenders’ trade body. Russell Hamblin-Boone, chief executive of the CFA, said he welcomed the prospect of “open conversation and dialogue” with ministers and regulators.
Payday lenders have been heavily criticised recently. Last week Labour MP Paul Blomfield tabled a Private Member’s Bill in parliament, calling for tighter control over the advertising and marketing used by the firms, and charities have also spoken about the effect of payday lending on consumers. The debt charity StepChange has identified five cities where average payday loan debts rose by up to £563 between 2011 and 2012: London, Cardiff, Liverpool, Birmingham and Leicester.
Delroy Cornialdi of StepChange said “These figures offer a frightening insight into how certain communities appear particularly vulnerable to increasingly high levels of high-cost borrowing which could result in serious financial hardship.”