This is an historic moment, but more could be done right now to tackle rip off lenders

After fifteen years of campaigning on the issue, we are delighted that Government today included provisions within the Financial Services Bill to provide regulators with the power to cap the cost of credit agreements.

The Government amendment sets out a general power for the new Financial Conduct Authority to make rules that:

• Prohibit the charging of certain types of fees which it considers to be unacceptable; and


• Prohibit the charging of costs above an amount which it specifies as unacceptable.

Further to this, the FCA is to be provided with a power to prohibit ‘rollover’ lending, which is commonly used by payday lenders.

In the event of a breach of any such rules, agreements will be unenforceable, with any payments made by the borrower recoverable from the lender, and the lender will be liable to pay compensation to the borrower.

Welcoming the Government amendment, Damon Gibbons, said:

“This is an historic moment. After fifteen years of pointing out how money lenders have been exploiting the poorest households we finally have cross party agreement that direct action to cap prices and prevent other abuses is needed . The legal loan sharks are now on borrowed time. However, we have to move forwards as a matter of urgency and the FSA should now launch a consultation to help shape the new rules as early as possible.

But more can and must be done now to protect consumers. The FCA will not be taking on the responsibility for the regulation of consumer credit until 2014. In the meantime, and faced with a possible future crackdown, many money lending companies will inevitably take one last opportunity to rip off some of the poorest households in the country.

To prevent this, the Office of Fair Trading should immediately revise its Irresponsible Lending Guidance by indicating a level of credit costs the charging above which it will take as prima facie evidence of an irresponsible lending business model. We recommend that these ‘benchmark costs’ be initially set at £20 per £100 lent for payday loans and £65 per £100 lent for door to door money lenders.

It is now six years since the Competition Commission found that home credit lenders were making excess profits. At the time of the Commission’s inquiry, Provident Financial was charging £65 per £100 lent. It is now charging £82 per £100 lent, yet its cost of capital have not increased significantly and, with improved data sharing in place across this sector it has better information available to it to assess the risk of default. By our calculation, Provident has made at least £30 million in excess profit in the past two years alone. Insisting it reduces its prices back to the level charged in 2006 would be a good start on delivering on the promises to tackle the money lenders made in Parliament today."

Early Day Motion on Home Credit Market

Debt on our Doorstep is calling on all supporters to lobby their MP's to support an Early Day Motion (EDM number 379) put down by Ian McCartney M.P on the Home Credit Market.

The EDM, which has already attracted over 50 signatures, reads:

That this House notes the ongoing lack of price competition in the home credit market and the devastating impact that high cost credit is having on the poorest communities as reported by Channel 4's Dispatches programme on 7 December 2009; further notes that the Competition Commission's remedies for this market have not had any impact since its inquiry into the home credit market in 2006; further notes that Provident Financial now charges £82 for every £100 lent, which is 26 per cent. higher than was reported three years ago; further notes that Provident now have an estimated 70 per cent. of the market and that the `unfair credit relationship' test introduced by the Consumer Credit Act 2006 has not led to a single instance of prices being lowered; believes that urgent and effective action is now required to help low income borrowers obtain credit at a fair price; and calls on the Government to provide the Office of Fair Trading with a power to cap prices in non-competitive areas of the credit market, or the Competition Commission to immediately review its remedies for the home credit market and or the Financial Services Authority to introduce a rule requiring banks to demonstrate how they are helping to expand access to affordable credit, for example by partnering with credit unions.

Supporters are urged to write to their M.P's asking them to sign up to the EDM. The list of current signatories can be found at http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=39940&SESSION=903

Speech to All Party Parliamentary Group on Credit Unions

A copy of Debt on our Doorstep Chair, Damon Gibbons, speech to the All Party Parliamentary Group on Credit Unions is now available here

Barnardo's slams Provident rates of 545%

Barnardo's 'Breadline Britain' report, published yesterday, rightly slams Provident's 545% APR loans to some of Britain's poorest families as 'extortionate'. The report comes on the same day that Provident announced a rise in pre-tax profits in the first six months of the year and following admissions from Provident Chief Executive Peter Crook that one of the effects of the credit crisis has been to drive people previously catered for by cheaper lenders to the high cost end of the market.

But what is to be done about the problem? The OFT has today published it's Financial Strategy Action Plan which contains, amongst other things, an acknowledgement that competition in our credit markets has been curtailed by the crisis and is failing to deliver a fair deal for consumers.

That comes as no surprise. In 2006/07 the Competition Commission investigation into door to door lenders found that nearly £100 million in excess profits were being made by firms in this market. But with competition weakening, the Commission's own remedies, which largely relied on people being able to build up a credit record and move onto cheaper, more mainstream types of borrowing, have failed to address the problem. The movement is all the other way.

We now need urgent and direct action to address this failure. As part of its plan, the OFT is reviewing the high cost credit market and rightly considering the case for a cap on credit charges. In our view, this cannot come too soon and we will be submitting evidence on this issue to the OFT in late August. But the real need now is for supporting agencies to lobby their M.P's to support the introduction of legislation to cap credit costs before the next general election. If you are able to help with the campaign, please get in touch by e-mailing info@debt-on-our-doorstep.com

Ian McCartney M.P to work with Dood on Rate Cap proposal

Ian McCartney M.P today announced his intention to work with Debt on our Doorstep in order to develop a proposal to introduce a system of interest rate caps, which he will submit to the Chancellor, Alistair Darling, and Business Secretary, Peter Mandelson at the end of the week.

The announcement came during a live interview on the BBC's Politics Show, North West, in which Damon Gibbons, Chair of Debt on our Doorstep also took part.

The full show can be viewed from the following link, with the coverage from the North West starting 33 minutes in.

http://www.bbc.co.uk/iplayer/episode/b00fvxd1/The_Politics_Show_30_11_2008/

Banks make record profits as customer battle debt

Sunday Mirror, 7 January 2007

Exclusive by Stephen Hayward, Consumer Correspondent

HIGH street banks are set to declare record profits of more than £40BILLION A YEAR - while their hard-up customers plunge deeper into debt.

The astonishing profits - which work out at £112million a day - are up from £34billion the year before.

They come at the expense of customers who pay £5billion a year in overdraft fees and £3billion for controversial payment protection insurance on loans, credit cards and mortgage repayments.

Last night anti-debt campaigners accused the banks of growing rich on the back of spiralling personal debt, which now stands at a record £1.3trillion.

The biggest single winner is HSBC, Britain's biggest bank, which made £13billion last year, up from £11.5billion in 2005.

Halifax Bank of Scotland, accused of ruining Christmas for Farepak customers after failing to increase its owners' overdraft last October, has racked up £5.5billion profits, up from £4.8billion.


The figures are due to be announced over the next two months. They come as millions face bigger home loan bills because of rising mortgage rates.


There has also been a surge in repossessions and personal insolvencies - expected to top 100,000 a year for the first time.


Critics say high street banks have pushed up overdraft charges -which the Office of Fair Trading is investigating - while offering paltry interest rates on accounts.


Further profits have come from financing lucrative takeover deals, switching customers online and closing local branches.


Niall Cooper of the Debt On Our Doorstep pressure group said: "If interest rates go up it is quite feasible the debt bubble will burst."


Stuart Bernau, boss of Nationwide, Britain's biggest building society, said: "It's natural that customers will question whether they are getting good value and service from their banks."


Pula Houghton, senior policy advisor at consumer group Which?, said: "People are being penalised for the smallest transgression."


Britons owe a third of unsecured debt in Western Europe, typically £3,000 in debt - double that of their continental cousins.



WHO'S RAKING IT IN
HSBC £13bn
RBOS/NatWest £9.2bn
Barclays £7bn
Halifax Bank of Scotland £5.5bn
Lloyds TSB £3.7bn
Abbey £940m
Northern Rock £610m
Alliance & Leicester £553m
Bradford and Bingley £333m


HOW THEY HIT YOU
INTEREST rates up to 18.3% on overdrafts - 29.8 per cent on unauthorised ones.
£25 CHARGE for bouncing cheque.
A 5% RISE to 16% on credit card rates.
MONTHLY fees on credit cards.
3% INTEREST on balance transfers.
A £3 CHARGE on credit card cash withdrawals.