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PAC report on Regulating Consumer Credit

Jackie Doyle-Price says Regulators have failed to use their powers to control Payday Lenders.

Jackie Doyle-Price a member of the Public Accounts committee has commented on the release of the Committee’s report on Regulating Consumer Credit.  She said “The expansion of high cost credit in the form of payday loans has fuelled toxic levels of debt on the part of consumers leading to demands for more regulatory powers.

What our report shows is that the regulator has failed to use the powers at its disposal to curb the unacceptable practices shown by some payday lenders.  Lack of affordability assessments, aggressive use of rollover loans and default charges, can see consumers finding themselves racking up high debts over a short period.  The regulator has responsible lending rules and the power to take action under unfair contract terms and has failed to do so.  I want to see the FCA become much more interventionist in this area as it takes responsibility from the OFT.

But MPs should be wary of calling for caps on the cost of credit.  What is important is that customers know up front how much they are paying.  We would like to see the misleading APR rules ditched and replaced by a legally required statement of the Total Amount Repayable in cash.”

MPs have been drawn to caps as a regulatory tool to tackle the high APRs which exist in the sector.  But APRs are meaningless as the loan is not extended for a year.  Neither would caps tackle the excessive default fees which are the prime cause of detriment.  For example, one payday lender would charge £25 for each reminder when a customer defaults.  When the lender is sending a reminder on the first, third, fifth and seventh day of default and charging £50 for the reminder sent on the 10th day, we can see how debt gets out of control.  The reality is that the regulator could deal with this already using its powers to take action against unfair contract terms.

Furthermore MPs need to understand that customers are only accessing credit in this way because they cannot get it from anywhere else.  Mainstream lenders are not interested in providing small loans for short periods.  But if regulation makes this business uneconomic, this source of credit will be reduced and vulnerable people may well find that their only source of credit is the real loan shark.  Far from protecting consumers, caps may leave them at the mercy of some very unpleasant people.”




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