Financial Services (Banking Reform) Bill — Third Reading

Part of the debate – in the House of Lords at 9:45 pm on 9 December 2013.

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Photo of Lord Mitchell Lord Mitchell Labour 9:45, 9 December 2013

My Lords, my head has been spinning in disbelief since the introduction of this Government’s amendments. Even two weeks ago the Prime Minister, the Chancellor and the Business Secretary were resolute in their opposition to any form of capping of interest rates offered by payday lending companies and other suppliers of short-term credit; yet here we are today, legislating for just such a cap. We are stating to the FCA that what was previously defined as a “may” now will become a “must”. That is a good outcome and I, for one, applaud the Government for this massive U-turn. It could not have been easy for them to eat their words, but politics is politics and if the heat has got too hot it is time to get out of the kitchen.

For nearly four years I have been working on a campaign to regulate payday lending. Of course, I knew about loan sharks and the terrible misery that they cause; but I had not really focused on the way this industry was developing. When I did, I was aghast. Here was a business that was enticing people into debt and playing on their vulnerabilities. Any way you cut it and any way you measure it, 6,000% interest is beyond morality and decency. I felt that it had to be regulated and that it was my duty to do so within this Parliament.

Last year we managed to persuade the Government to include an amendment to the Financial Services Act that gave the Financial Conduct Authority the power to regulate all aspects of payday lending and, in particular, the capping of interest rates. We gave it the teeth, but sadly it did not bite. Indeed, it decided that it was not yet persuaded that these rates should be capped at all. One can only wonder: if 6,000% had not moved the FCA, would 10,000% or 100,000% do so?

A little-known fact is the extent of financial support that payday lending companies receive from the City. I have read that Barclays Bank lent Wonga over £250 million; when I investigated further I found that the number was very much higher. If you consider how much all the clearers and all the other financial institutions must be lending to the payday lending companies, the number must be many billions of pounds. The City purports to have washed its hands of this grubby sector, but in truth it participates by using payday lenders as surrogates.

I have this to say to Barclays and, in particular, to its chairman. If your mission really is to clear up the mess of the last 15 years, then please tell me: what is your bank doing, funding the payday lending industry? We have come a long way in these past four years and tonight will be a milestone. But we need to go further still. I address these comments to the FCA. Please ban all advertising for short-term loans targeted at children. It is bad enough that people have to borrow money from the payday lenders—but giving payday lenders carte blanche to use sophisticated advertising to encourage young children to persuade their parents to get into more debt has to be morally wrong.

Despite appearances to the contrary, I am not against the payday loan industry. We need it, it is essential and it must be successful, but we want an industry that offers loans at fair rates and does not extort. I think that this amendment achieves just that.

Can the Minister confirm unequivocally that “must make rules” means that the FCA is compelled to introduce a cap on the total cost of these loans? Can he elaborate on what powers the Treasury will have to influence the cap under proposed new subsection (1B), where it states that the FCA “must consult the Treasury”? I know the noble Lord, Lord Sharkey, made a point on this, and that the noble Lord, Lord Newby, explained the situation but there has been a degree of wriggle room in all this and we must be absolutely certain where we stand.

We have one reservation with the Government’s amendment. To address that issue, we have put down our further amendment. The Government want these changes to take effect by 2 January 2015 and we want it to be by 1 October 2014. Why have we tabled an amendment for the sake of just 90 days, particularly since several bodies have said that the FCA needs time to prepare for the implementation of the interest rate cap? We understand that it needs to do the job properly but six months after it takes responsibility for regulating consumer credit provides a reasonable amount of time while ensuring that vulnerable people are protected in the lead-up to Christmas 2014.

At this very moment in this month of December, the payday lending companies are in full throttle. Last month, the Money Advice Service’s annual Christmas survey showed that over a million people planned to take out payday loans to pay for Christmas. Some 34% of adults in the UK believe that they will start the new year in debt because of the cost of Christmas. By wanting the new amendment to become effective on 1 October 2014, we are determined to make 2013 the last payday rip-off Christmas. By choosing this date, we will accomplish that goal. I beg to move.