The government needs to take swift and decisive action to protect members of the public from falling prey to sharp practices by payday loan companies, according to a senior group of MPs.
The Business, Innovation and Skills Committee have published a report on the debt management firms, in which they urge ministers to hurry up with plans to clamp down on sharp practices in the loans industry. Committee chair Adrian Bailey MP said they were more often than not targeting the poor:
“Increasing numbers of people up and down the country—not least some of the most vulnerable members of our society—are relying on the provision of consumer debt management services and payday loans to make ends meet," he said.
“And yet this industry remains opaque and poorly regulated. Despite a Government consultation that ended almost a year ago little has been done to remedy the situation.
“The Government must take swift and decisive action to prevent firms from abusing the needs of such a vulnerable customer base.”
The MPs claim that the government’s Financial Services Bill, did little to clarify how regulation should be done. The committee has recommended increased licensing fees for high-risk credit businesses and an easier ability to suspend their licenses.
The committee called on the government to clamp down on the activities of payday loan companies. These loan companies were criticised as “irresponsible [and] encouraging further debt rather than helping people resolve their problems”.
The government’s new financial advice group, The Money Advice Service, came under heavy criticism from the committee. The service was branded “confusing”. MPs criticised the “unclear” business plan, along with the decision to pay its chief executive a salary of £350,000. The committee wrote:
“The perception of such extravagance does not sit easily in an organization tasked with helping those in debt.”
The MPs' report has been hailed by a Shadow minister Stella Creasy, who told HuffPost UK : "The BIS Select Committee's report is a clear indictment of the Government's attempt to kick the issue of regulating the cost of credit into the long grass."
"I also welcome the Committee's recommendations that the payday loan industry be better regulated - in particular that rolling over of loans be prevented, that proper credit checks be carried out, that all transactions be recorded on a database, and that use of the continuous payment authority be restricted.
"Calls to the Money Advice Trust about payday lenders have increased fivefold in a year - what clearer indication does the Government need that action needs to be taken now?"
On Tuesday in the Commons George Osborne was asked what steps the government was taking. "There are practices in that industry that we want to see stopped—and I would highlight two in particular," he said.
"The first is the rolling over of loans, which we are working with the industry to stop; the second is the ongoing use of continuous authorities to take money out of bank accounts, which people might not be aware that they have granted to a pay day loan company or anyone else.
"We are dealing with those specific abuses and, as I say, we are creating a new powerful consumer champion in the financial conduct authority."