Creasy critical of failure to tackle legal loan sharks

Labour are set to intervene in another market payday loans.

The party’s dramatic adoption of an energy price freeze boosted their poll ratings earlier this year. And now, payday loans campaigner Stella Creasy has urged the Government to intervene with a cap on such short-term lending after it emerged the industry’s current code of conduct is failing.

It’s exactly a year since the payday loan industry legal loan sharks some call them revealed a new code of conduct.

And 12 months on it seems that document wasn’t worth the paper it was printed on.

Research last week by Citizens Advice Scotland found payday lenders routinely flouting 11 of the pledges in their own code.

That included failing to carry out basic checks to ensure applicants can afford to pay the loan back and failing to provide information about debt counselling for those that get into trouble.

The findings don’t surprise Stella Creasy. She’s the MP who has led the Sharkstoppers campaign to rein in payday lenders such as market leader Wonga.

She said: “All the incentives in this industry are about how much debt can you get people into because then they’re more likely to need your product. There is a need to completely rewire this market and these findings reflect that reality.

“Why would you do checks on people when it doesn’t matter to you if they can pay you back, it just matters that they pay something?

“Why would you be concerned whether or not they can afford the debt when really what you’re looking for is them to start a relationship with you of repeated debt?”

The Walthamstow MP, nicknamed Stellar Creasy, such has been her rise in the Labour party, was made shadow competition and consumer affairs minister at last month’s reshuffle.

She explained: “There were 11 of these companies in Walthamstow in 2010 when I was elected. There are now 18 of them. You can see wealth seeping out of my community and debt seeping in.”

Creasy wants to see a cap put on the amount companies can charge for credit. Currently loans can attract interest rates running into thousands of per cent.

Creasy tells the story of a young nurse who borrowed £100 to pay for a new tyre on the car she uses to get to work. Her debt spiralled to £17,000 and was only cleared when her mum was made redundant and used her payoff to settle it.

Creasy explained: “If you cap the price you limit the amount companies can squeeze out of any one loan there’s no incentive to keep pushing people into debt because at some point you’re going to hit a ceiling.

“That’s the lesson most other countries have learned, that’s why most other countries have put a cap in place.”

The Government has been happy to leave the payday loan industry to regulate itself.

Creasy added: “Every time we’ve asked what happens if somebody breaks their own code of conduct the answer is nothing. How many people have they thrown out of their trade body? Nobody.

“It’s like turkeys organising Christmas and then telling you that they’ll sort the crackers out, too. Oddly enough it doesn’t happen.”

At Prime Minister’s Questions last week David Cameron did say the Coalition would “look at all steps” to deal with the payday loans industry and encourage credit unions as an alternative source of short-term credit.

Creasy is not expecting much. She said: “The most charitable thing I can say is that the Government hasn’t understood this industry.

“The least charitable thing I can say about the Government is that they are sitting on their hands while legal loan sharks systematically prey on the bank balances of hard-pressed working families despite the overwhelming evidence that no other intervention other than price capping will really transform the behaviours in that market.”

Scotland’s First Minister has promised a cap on such loans should he win next year’s vote on independence, and his government launched a 12 Days of Debtmas campaign last year warning of the dangers of payday loans.

Creasy is still unimpressed. “I would caution Mr Salmond from a belated conversion that is half-hearted.

“One of the things these companies try to do is offer loans offshore so if you think the answer is independence it’s not, the answer is a cap and a robust consumer credit regime with the strength of having a system that we can enforce at a national level.”