This week the ‘End Legal Loan Sharking’ campaign working with Lisa Nandy, newly elected Labour MP for Wigan, have tabled an early day motion to bring attention to the issue of legal loan sharking and put pressure on the government to act.
This week the ‘End Legal Loan Sharking’ campaign working with Lisa Nandy, newly elected Labour MP for Wigan, have tabled an early day motion to bring attention to the issue of legal loan sharking and put pressure on the government to act. This campaign goes to the heart of the ethics and beliefs of Compass that democratic and collective solutions are often better than market ones.
Since the onset of the credit crunch and the recession banks have not been able to or chosen not to provide affordable credit for millions of people. This has meant a huge growth in the number of people using high cost credit (home credit, payday loans, pawn broking and rent to buy retail credit).
The number of payday loan users has increased fourfold since 2006, the number of pawnbrokers has trebled in seven years. The Office of Fair Trading investigated the issue of high cost lending earlier this year and warned against capping the cost of credit.
We think the Office of Fair Trading is wrong, and that the proposals it has put forwards – industry codes of practice and financial education – won’t work, and certainly won’t work quickly to reduce prices for consumers. The OFT wants to see increased competition lower prices, and thinks that better informed consumers will drive this forwards.
However, it doesn’t provide any evidence that this will work or indicate how long this is likely to take. We think people need a fair deal now.
Those against introducing caps on the cost of credit argue that caps will drive lenders out of the market and consumers will turn to illegal loan sharks. We respond to this in two ways:
1) A cap must be introduced at a level which allows risk to be reflected in the price. We know that a price of £25 per £100 lent would be affordable for many high cost lenders but would also give consumers (who are currently paying up to £80 for £100 borrowed) a considerably better deal.
2) We also think that there should be alternative sources of affordable credit such as through a post bank or mutual organisations such as credit unions.
So far 36 MPs from the Labour Party, the Lib Dems, the DUP, Plaid, the SDLP and the Conservative Party have signed EDM 660. We expect a lot more will sign if constituents put pressure on them. You can use our simple tool to lobby your MP today.
Caps on the cost of credit exist in many US States, two provinces of Australia, Canada, and eight EU countries including Germany, France and many others. In a poll commissioned by Compass and Trident Reach we found that 7 in 10 people backed the idea for a cap on the cost of credit.
The coalition government are going to have to decide between the people or the financiers.
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