Payback to Payday Lenders

24/10/2012 16:46 BST | Updated 24/12/2012 10:12 GMT

Today, Lord Parry Mitchell will be introducing an amendment on the Financial Services Bill to give the new Financial Conduct Authority (FCA) the power to set guidelines on the impact of lenders' behaviour on consumers, which, as his blog post yesterday noted, will potentially include the capping of interest rate charges.

He wants the following added:

"Power of the FCA to make further provision about regulation of consumer credit

(1) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment.

(2) This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer."

It's a long shot; there have already been tabled hundreds of amendments to the bill and not one has gone through. It also follows a similar amendment made by Stella Creasy MP earlier this year, which also failed to get approval - which communicates the coalition governmnent's message loud and clear: there is nothing wrong in this area, of payday lenders, and we're sticking to that!

Only, that is far from the truth.

Andrew Tyrie, the chairman of the Treasury select committee, back in January this year viewed the creation of the FCA as an opportunity to improve upon the way in which the Financial Services Authority (FSA) regulated financial products.

However he did add a sobering comment: "If we are not careful, the FCA will become the poor relation among the new institutions."

This is precisely what will happen if Lord Mitchell's amendment isn't carried, and upon the heads of the government it will be.

Regulation of this controversial industry has already been called into question and proof of its inability to self-regulate has been proven time over.

The regulatory authorities, too, have clearly been shown not to have a grip on irresponsible lending. In 2010 the OFT's guidance (which the FCA will replace later this year) for creditors on irresponsible lending pointed out that:

All assessments of affordability should involve a consideration of the potential for the credit commitment to adversely impact on the borrower's financial situation, taking account of information that the creditor is aware of at the time the credit is granted.

But the OFT admit themselves that they haven't got the capacity to oversee each and every case of irresponsible lending.

Recently BBC reporter Richard Bilton collected nearly £1000 from payday lenders in under two hours, with relative ease and little questioning. At no point did any of the shops that Bilton entered assess or consider the adverse affects these loans could have on him - thus they were in breach of the OFT's guidance.

Back in June, councillor and journalist Rowenna Davis demonstrated the ease with which this under-regulated industry deals out expensive cash, with few checks, by visiting shops herself, being lent money to cover food, bills and even betting on a horse.

This industry is growing fast by the day, after being given a great boost by the recession, and it is high time the government gave the regulatory architecture some teeth to make sure vulnerable people aren't being exploited to the detriment of their personal finances further.