MP’s affordability crack down on payday loans

Robyn Hall

July 18, 2013

The bill, tabled by Labour MP Paul Blomfield, aims to stop “truly appalling” practices and make it a statutory requirement to assess the affordability of all applicants.

Blomfield, MP for Sheffield Central, said: “We all know that payday moneylenders are making millions from loans aimed at some of the most vulnerable. They target the poor and make them poorer pushing them into unaffordable and spiralling debt with exorbitant charges.

“It is not the intention of the bill to close down payday lenders because sadly there are few alternatives for many people. However many of the practices our constituents have experienced are truly appalling.”

Although most lenders claim to assess affordability, the Office of Fair Trading said in a report on the industry: “The vast majority of those we inspected were unable to provide us with satisfactory proof that they applied such assessments.”

The Citizens Advice Bureau found that only 36% of respondents were asked questions to check whether they could afford to pay back the loan.

The Bill would require lenders to assess the affordability of loans and introduce an affordability ceiling to be determined by the Financial Conduct Authority – either based on credit repayment as a proportion of monthly income or on the total value of loans.

It would also pave the way for the FCA to set a cap on default charges and the circumstances in which those charges could be applied.

Lenders would be required to share information with credit reference agencies as an interim measure pending the establishment of a central real-time database requiring lenders to log details of loans and to seek information to ensure that they do not lend above the affordability ceiling determined by the FCA.

It would also provide for a levy on the sector to run such a database which Blomfield said would be a “powerful” tool to aid regulation and support evidence-based decision making.

In support of the bill, the credit referencing agency Equifax has prepared a positioning paper to outline its proposal of how the credit agencies can collectively help to improve standards within the industry.

It recommends that the sharing of data across the UK’s credit referencing agencies should sit within a wider code of conduct for the payday lending industry.

Established principles and standards, approved by the information commissioner, are already in place to govern the secure and consistent sharing of data across the financial services sector and wider consumer industries.

The positioning paper states that these principles, governed by the steering committee on reciprocity, provide a framework for extending secure, consistent credit data sharing to the payday lending sector.

And it added that Equifax, Experian and CallCredit are unique in providing this support to the UK’s financial services industry and have a proven ability to introduce these ways of working in wider sectors such as telecommunications and utilities.

Neil Munroe, external affairs director at Equifax, said: “Sharing of the credit history data gathered by the payday lenders is fundamental to the industry demonstrating its commitment to responsible lending and borrowing.

“For the industry to be seen to be responsible for the lending it undertakes and for ensuring its customers do not become over indebted it should look to adopt the data sharing practices that have been the foundation of responsible lending amongst the mainstream credit providers for many years.”

As part of a separate initiative, yesterday the government announced it had launched two new surveys aimed at consumers and lenders to address concerns in the payday loans market.

The roll out of the surveys followed the ministerial summit in July which discussed the practices of the payday industry.

It included a frank exchange of views about priorities the FCA could focus on to reduce consumer harm in the industry when it becomes the regulator in 2014.

There was broad agreement that the key areas should include advertising, rollovers, use of continuous payment authority and affordability checks.

Consumer minister Jo Swinson said: “I welcome the fact that industry representatives signaled a willingness to work more closely with the debt advice charities to identify and better understand why things are going wrong.

“This is a helpful step. I also encourage people who have taken out a loan to take part in our survey so we can assess how the lenders are living up to the promises they made last year.”

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