09/08/2013 07:33 BST | Updated 09/08/2013 10:31 BST

Labour Considers Levy On Payday Lenders In Bid To Boost Credit Unions

Embargoed to 0001 Monday August 5. File photo dated 10/01/07 of money as payday loan customers are being urged to "fight back" if they have been mistreated by a lender by making an official complaint to the ombudsman.

Payday lenders could be forced to pay a levy towards their rival credit unions, a type of membership-owned lender, under proposals being considered by the Labour Party.

Other ideas include requiring councils, housing groups, rail and bus firms to promote the credit unions, alongside curbs on payday lender advertising and "rollover lending", the Financial Times reports.

These ideas have been put forward by Labour's Co-operative wing, whose 33 MPs include shadow chancellor Ed Balls.

Labour MP Gareth Thomas, chair of the Cooperative movement, told the Huffington Post UK: "I do think there should be a levy on payday lenders. There is on every other form of bank or financial services company but not currently on them.

"It could help to pay either for money advice or for expanding access to a credit union."

Earlier this year, Labour leader Ed Miliband said he would give councils the ability to stop payday lenders and betting shops from swamping British high streets.

"Too many councils are finding that they don't have the real power to stand up for local people. But that is what politics is supposed to be about: standing up for those without power and giving power to them. Currently if a bank branch closes down, there's nothing a council can do if a payday loan shop wants to move in and open up in the same place. Even if there's another lender next door. That can't be right," he said.

The Co-operative wing's proposals come after Vince Cable backed Archbishop of Cantebury Justin Welby in his campaign to support credit unions. Welby has criticised payday lenders, who have become notorious for charging as much as 5,853% annual interest, and once told Wonga chief executive Errol Damelin that he planned to 'compete' them out of existence.

The Liberal Democrat business secretary said he had enjoyed a "very constructive and positive" meeting with the Archbishop this week.

“We discussed how we could join forces to forward our common aims around tackling the excesses of the payday lending industry through supporting the expansion of credit unions, and making banks safe,” he said.

The business department has pledged £35 million over 10 years to help credit unions expand, along with reducing red tape and lifting the cap on interest rates charged by the industry from 2% to 3% a month.

Cable previously spoke to the Huffington Post UK of his support for credit unions, saying: "I'd love to liberalise the credit unions, although there is obviously the problem around the concept of their common bonds - but there is definitely a wider role for them and building societies."

Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, which represents payday lenders, said: "We welcome the Labour Party's focus on responsibility in the short-term lending sector. CFA members are committed to a set of independently-monitored standards which are designed to protect consumers.

"These include capping the number of times a loan can be rolled over, clearly displaying the cost of a loan in £ and p, freezing interest and charges for people in difficulty and referring people to free debt advice. Our members all comply with strict advertising regulations.

“It is important that people have a choice of financial products to meet their needs and, whilst credit unions provide very different services to our members, we fully support the important role that they play. We also support well-designed well-implemented regulation and are working closely with the FCA as they prepare to take responsibility for our sector. We would welcome a dialogue with the Labour Party on these important issues."