I called on the Chancellor to clamp down on high cost credit that leads to problem debt by extending the payday loans cap to the doorstep lending and rent-to-own markets.
I was closely involved in the cross-party campaign to regulate high cost credit, which resulted in the Financial Conduct Authority introducing a total cost cap on payday loan debt and the number of people approaching Citizens Advice for help with unaffordable payday loan debts falling from over 16,000 to fewer than 9000.
Citizens Advice estimates that 1.6 people in the UK use doorsteps loans and that 400,000 people have rent-to-own debts. Their modelling suggests that replicating this cap in the doorstep lending and rent-to-own markets would save consumers £123 million and £62 million a year in repayments respectively.
In the House of Commons during Treasury Questions, I said:
“The number of people with unmanageable payday loan debt has more than halved since the Financial Conduct Authority introduced a total cost cap on those loans more than three years ago – after pressure from many of us on both sides of the House.
“New analysis by Citizens Advice suggests that extending the cap to the ‘doorstep loan’ and ‘rent-to-own’ markets would have the same impact on problem debt in those sectors and could save consumers up to £154 million in repayments a year.
“Will the Chancellor consider doing that?”
The Economic Secretary to the Treasury, John Glen MP, responded on behalf of the Government:
“I think the Honourable Gentleman makes a very sensible point and the FCA is looking into this and will be coming forward with another report in May. I met with Andrew Bailey just a few weeks ago to underscore how important this issue is and as we move forward with the construction of the single financial guidance body that will deal with some of the problem debt challenges, this will be another focus of their work as well.”
Introducing a total cost cap on payday loans made a huge difference to people trapped in payday loan debt. It’s now time to tackle other high cost credit markets. Doorstep loans are notorious for high interest repayments and willingness to accept borrowers with poor credit histories who will get into difficulties. In the rent-to-own sector customers typically pay above RRP for an essential household item and repay the loan at high interest rates, usually paying a lot more than the product is worth. A cap on this credit would significantly reduce the strain of problem debt on often vulnerable and low-paid consumers.
You can watch my exchange with the Minister on ParliamentLive TV here.