The Debt Advisor recently put this question to Kate Green, parliamentary candidate for the Labour party in Stretford and Urmston. Kate confirmed that Labour would take action to help prevent people falling into unmanageable debt by clamping down on irresponsible lending. She said: “Our manifesto commits to capping the cost of credit, stopping the spread of payday lenders on our high streets and raising millions of pounds through a levy on payday lenders' profits.”
Bev Budsworth, managing director of The Debt Advisor commented: “Restrictions outlined by the Financial Conduct Authority (FCA) are welcome as we try to ensure that the payday loan market is regulated correctly. The caps introduced by the FCA which limit the number of times loans can be rolled over and also how often firms can attempt to collect repayments from bank accounts, will undoubtedly help to control this sector. However, statistics from the Consumer Finance Association, which represents 12 payday lenders, estimate that the new rules and a cap on costs could encourage up to half of firms to leave the market.”
Bev continued: “Wonga, who are perhaps the most well know payday lender, has recently posted pre-tax losses of £37.3m last year, compared to a profit of £39.7m in 2013. The firm lost 400,000 UK customers and now has fewer than 600,000 borrowers. The question now is who do consumers in need of financial help turn to?”
According to Kate Green, a levy on payday lenders’ profits would be used “to directly fund credit unions that can offer a real alternative for people in desperate need.” However, if payday lenders’ profits have been slashed, how does the next government help credit unions? According to the Association of British Credit Unions (ABCUL), throughout the UK there are currently around 362 credit unions and 1,197,293 people using the sector with some £718 million of total loans, however, according to the Public Accounts Committee in 2013, two million people accessed a payday loan. If this market is now harder to access where do these extra people go to access finance and how will this affect people’s lives?
The Debt Advisor recently stated that household debt from council tax and gas and electric bills are now the biggest issues facing UK families. It argued that the next government must work out how to allow people to access financial help when needed but offer a sensible alternative to the payday loan market.
Bev questioned: “What are the realistic, viable alternatives for poorer UK families who are already struggling with benefit cuts and the cost of living?”
According to Kate Green, one area that could reduce the financial hardship of UK families is the abolishment of the bedroom tax. She said: “we will completely abolish the bedroom tax as an immediate priority, if elected to government this week.”
Bev concluded: “Whatever happens at the polls today, access to finance and household debt will continue to be a key battleground for the next parliament. Who will be able to offer a realistic and affordable credit solution that is widely accessible but that doesn’t keep people in a spiral of debt like payday loans did?”