My Lords, increasing transparency and understanding for consumers who use these loans is a key part of the work which came out of our consumer credit review, which is now concluded. We are working with the industry and consumer organisations to ensure that concerns about practices in this market that lead to consumer detriment are addressed in future codes of practice.
Does the noble Baroness agree that making sure that consumers make an informed choice is of paramount importance and that the consumer credit advertising regulations may be deficient in this respect? Will she facilitate a meeting between me and some campaigners with her right honourable friend the Business Secretary to discuss that matter?
I agree with the noble Lord that a well informed consumer is an empowered consumer. The information which is given out is often process driven by the people wishing to lend the money rather than those trying to borrow it. I have spent a long time looking at this, so I am with the noble Lord. I would welcome any ideas that he has which would enable us to work together on this.
My Lords, does the Minister agree that one of the problems is that for many people of modest means there is a sparsity of easily accessible places in which to put their money and from which to borrow? What are the Government doing further to promote credit unions, which are the most obvious way for many of these people to manage their money?
My noble friend is absolutely right: credit unions are the way to go. Why they have never taken off in Great Britain, I will never know. For years and years consumer groups have tried to get people to save with credit unions. However, the Department for Work and Pensions will shortly report on its study on how we can best support these credit unions, which wish to extend their services to benefit many more customers.
Will the Minister indicate whether she agrees that percentage rates, including the annual percentage rate for loans which are available for only a short period, are often highly misleading? Indeed, they may suggest that the costs are far higher than they really are. Does she agree that what is needed by the consumer is cost in pounds and pence for each day that the loan is available, and information on whether there are administration costs or other costs? That clarification would be much more helpful than a mere percentage sign and a number.
I have to agree with every word that the noble Lord has said. He is a past director of the Office of Fair Trading and extremely well informed on this matter and together we have done much work on it over the years. There is no doubt that the APR should be replaced, certainly with a total cost of credit. We know that APRs are not the clearest way to show exactly how much short-term loans, such as payday loans, cost. It sounds terribly frightening to hear the figure £2,000. However, as we know, people borrow this money for a short number of days. The information they want is how much the loan will cost them for the short number of days they need to borrow it. As I say, I agree completely with the noble Lord's remarks.
My Lords, does the noble Baroness not agree that people who take out these loans are usually the poorest in our society and have the least understanding of what even an APR is-never mind the interest rate? Does she not also agree that it is crucial that such people are able to get help from places such as citizens advice bureaux because they are local, or from groups that have outreach, rather than having to find credit unions that such people often do not understand? As the Government are so determined to tackle this problem, what is she going to do to encourage the CABs and outreach groups to move forward?
As the noble Baroness knows, a great deal of talk is going on with the CABs regarding the possible new range of duties that they will be delivering in the high street, which is, as she said, where people are and want to be. They do not necessarily want to join a credit union. They can go to other places for free debt advice but, inevitably, people need this money at the last minute for reasons that are very important to them. They are not going to seek advice, but they will need to know where it is when they need it. What we would like to do, and what we are pushing for in the industry, is ensure that before that money is loaned such companies make sure that people understand exactly how much money they will have to repay. I will take up any suggestions that the noble Baroness may have.
Is not the simple answer to require those who lend money to tell people the exact cost of repaying the amount that has been borrowed and the time over which it has been borrowed?
My noble and learned friend is exactly right, and that is what came out of the consumer credit review. We are working with the industry and consumer groups to ensure that that is the information that people get immediately when they need it.
My Lords, the Church of England's national investing bodies recently decided to avoid investment in payday lending firms because of the risk of exploitative lending. Bearing in mind that credit has to be provided responsibly and affordably, will the Government also consider instituting a requirement that payday lenders must, before advancing a loan, assess a borrower's financial circumstances and ability to repay?
The firms are strongly controlled by the Office of Fair Trading as to how they get their licences. They should already be asking for and giving out such information. If evidence is brought that that is not happening, the OFT is very quick to come down on it, and the Trading Standards Institute is of course involved. At the end of the day, people who desperately need money will hardly hear what someone is saying to them about how much a loan is costing and how much they will have to pay back. Right now, right there and right then, they need a washing machine.
My Lords, can the noble Baroness kindly tell the House what use is made by judges in England and Wales of the statutory powers vested in them that allow them to ameliorate or even to disallow conditions in a loan agreement that are unconscionably harsh upon a vulnerable borrower?
I do not have the answer to that question today, but I will certainly look into it, write to the noble Lord and put the answer in the Library.
My Lords, over Christmas almost every bus in London was advertising wonga.com, which was going out of the way to encourage people to have these payday loans-loans that the firm itself was advertising at rates of 4,200 per cent per annum. Will the Government consider banning the advertising of these payday loans?
We are looking at all options, but we should always have in mind that it is difficult to take away from people the opportunity to have access to facilities that they need. One would therefore tread delicately in this area.