Payday Loan Industry (Regulation)
The next item of business is a members’ business debate on motion S4M-08036, in the name of Kezia Dugdale, on the Financial Conduct Authority’s plans to regulate the payday loan industry. The debate will be concluded without any question being put.
The debate is somewhat oversubscribed. We have a two o’clock start this afternoon for consideration of legislation, so if I am going to be able to call everyone who would like to speak, members must try to keep their speeches to three minutes. Kezia Dugdale, who will open the debate, has seven minutes.
Motion debated,
That the Parliament supports the Financial Conduct Authority’s latest plans to regulate the payday loans industry as set out in its initial report on consumer credit; welcomes stricter requirements for payday lenders, which include a mandatory affordability check on borrowers, limiting the number of loan roll-overs to two and tighter restrictions on what payday lenders can say in adverts; considers that the payday lending sector represents an increasingly problematic issue in the Lothians and throughout the rest of Scotland; is concerned that advisors at Scotland’s Citizens Advice Bureaux (CAB) are seeing over a hundred people a week with payday loan related issues; notes that CAB provide advice to anyone who believes that they have been unfairly treated by a lender or who has problems with debt; considers it important that the lending industry is open and transparent and offers consumers a fair deal but also protects them from financial ruin, and believes that these proposals go some way toward beginning to address these issues.
12:37
I thank members for staying and draw their attention to my entry in the register of interests, in which I am listed as being a member of the Capital Credit Union and the Co-operative Party.
There is a roll call of shocking statistics about the degree to which payday lending is a problem in the UK today. One in three people in Scotland cannot afford to save and one in five has no savings at all. The payday loan industry was worth £2.2 billion to the UK in 2012; 8 million loans were made in that year alone. We know that the most common use of payday loans is to pay for food, closely followed by fuel—gas and electricity bills.
The roll call of statistics is endless, but I specifically want to tell Parliament about one of my constituents, called James. James took out a £200 loan to buy some extra Christmas presents in the run up to Christmas a few years ago. When January came and the pay cheque was late, he could not keep up with that loan, so he took out a bigger loan to pay the first one off. When the payments for the second loan got too difficult, he went to another payday loan company and took out another loan. Before he knew it, he was £5,000 in debt to five different companies. Members might think that £5,000 is not a great deal of money—plenty of people have £5,000 car loans or carry that amount of credit on their credit cards—but the problem was that by the time James got to £5,000, every single penny of his wages was going on payday loan debt.
That is because payday loan companies use something called a continuous payment authority, which is basically a computer programme that can check a person’s bank account every five minutes to see whether there is money in it. That is what people sign up to when they take money from Wonga. Every five minutes, it can test their account to see whether they have money there, and if they have been paid it will take their wages. It will take their money before their rent goes out, before electricity bills or council tax bills go out—it might even take it before they even know that they have been paid. That is how people get into tremendous amounts of trouble.
James is in a better position now, because he went to a citizens advice bureau and got the help that he needed, but there are countless people like him. We need to be very careful about using the language of vulnerability to suggest that people who go to payday loan companies are somehow vulnerable because that is not strictly true. We know that 75 per cent of people who take out payday loans are in full-time work, that 50 per cent of them are men, that 50 per cent of them are under the age of 35 and that 30 per cent of them own their homes. We are talking about working Scotland: people like James.
What can we do about the situation? First and foremost, we need to cap the cost of credit and limit the interest rates that the companies can charge. My friend and colleague Stella Creasy has been campaigning for years on that issue. I am pleased that her campaign has been successful and that the UK Government has committed itself to a cap. After all, we need to remember that these companies are in the UK only because they have been legislated out of America state by state. The maximum interest rate that can be charged in Germany is 40 per cent, but we let Wonga charge 5,284 per cent and let families get into tremendous amounts of trouble.
The UK Government is acting only because it has been forced to do so by the efforts of thousands of anti-payday-loan campaigners across the country. However, James’s story makes it clear that capping the cost of credit alone is not enough. We need to tackle the rollovers and stop companies upselling products by telling people, “If you can’t pay that loan, we’ll give you a bigger one and you can just pay it back over a longer period.”
We also need to address the prolific and relentless advertising of payday loans that has taken over our radio and television stations, that arrives in people’s inboxes and which comes through their letterboxes. In an interesting report that it published this week, the Office of Fair Trading pointed out that in 2009 there were only 17,000 payday loan adverts on our TVs. By 2011, the figure had reached a quarter of a million and, last year, there were 400,000 adverts for payday loans on our TVs and airwaves. Given those figures, I was keen to highlight the issue in my motion.
Put bluntly, payday loan companies are profiting from the cost of living crisis that the country is facing. For too many families, there is simply too much month left at the end of the money. No one knows that better than those who work in citizens advice bureaux across the country and who see 100 people a week turning to them for help. They are in a unique position not just to quantify the problem, but to explain exactly what is going on behind the scenes, so I am pleased to be able to highlight some of the evidence from its payday loan report card.
That report card points out that only 35 per cent of the people who went to payday loan shops were asked whether they could afford the loan before they took it out and that only 20 per cent were asked to provide any sort of evidence on their income. It also points out that 16 per cent were asked whether they wanted to take out a bigger loan without being pressured to do so, and that only 7 per cent were offered free and independent debt counselling. Those truly shocking statistics show that even with capping the cost of credit we still need to address so much more about the way these companies go about their business.
Two years ago, I set up the debtbusters campaign for three reasons: first, to take on payday loan companies street by street; secondly, to promote credit unions in their place; and thirdly, to improve debt relief. Indeed, this week, Jackie Baillie and I have taken to the streets across the country, not least the high street in Shieldinch on the set of “River City” as we tried to save the character Scarlett Mullen, who is in a tremendous amount of payday loan debt. I also pay tribute to Glasgow City Council, which is doing a tremendous amount to take on payday loan companies. I think that it has the most progressive anti-payday loan policy in the UK; it is looking at advertising, pensions, planning, rates relief and the rents that credit unions could pay to give them an advantage over payday loan companies.
However, it is no use telling people, “Payday loan companies are bad” when they are desperate and need access to affordable credit. In that respect, credit unions have part of the answer. I know that we will have the opportunity to debate the issue in detail next week, but I simply point out that credit unions such as the Capital Credit Union offer a direct alternative to payday loans by providing instant access to money that is capped at an interest rate of 26.8 per cent. We need to invest in and to see more of that alternative model—I know that the Government is considering options in that respect.
The final part of the debtbusters campaign is debt relief. Given that we are about to debate the Bankruptcy and Debt Advice (Scotland) Bill, I ask the Minister for Energy, Enterprise and Tourism to think about what else he can do with that legislation to protect people from payday lenders. As I have said, even after we have capped the cost of credit, there is still so much more to do. For example, we have to examine the link with football clubs and look at financial education in schools.
I thank members for coming along and listening to the arguments, and I particularly thank Santa, who, although he is very busy at this time of year, was outside Parliament this morning warning people against payday loans. The fact that Santa has time to do that shows how important the issue is.
12:44
I welcome the debate and congratulate Kezia Dugdale on securing it. She has put a tremendous amount of effort into her campaign. I also apologise to Ms Dugdale, the Presiding Officer and other members because I will probably have to leave before the end of the debate.
I thank Citizens Advice Scotland for its efforts to highlight the very important issue of payday loans. It is clearly important that people who struggle to secure access to credit get the opportunity to do so, but we have for too long seen a pattern of irresponsible lending practice. Credit is often given too readily and at a rate of interest that any person would struggle to keep up with, let alone our poorest citizens. Kezia Dugdale did well to make the point that a broad range of people use payday lenders.
Citizens Advice Scotland has told us that its
“recent public survey, run over the past year, found that ... Over 50% of borrowers of a payday loan were using it for essentials including food, energy, and rent”,
as Kezia Dugdale pointed out in her opening remarks. It also told us that
“The average amount borrowed was between £100 and £400; however 14% of respondents had borrowed over £1,000”
and that
“The majority of respondents were in full time work meaning many Scots are struggling with finances for basic needs even when working full time”.
That is the reality that Citizens Advice Scotland found.
StepChange Debt Charity Scotland has told us:
“There has been a dramatic rise in payday lending”
among the people with whom it works, and that
“Almost 20 percent of clients had at least one”
payday loan
“in June 2013—a ten-fold increase since 2010.”
StepChange can break the figures down to constituency level. In my area—Cumbernauld and Kilsyth—it advised 60 clients in 2012. The average payday loan debt was £843, which was up from £624 in 2010. It is therefore clear that we need the industry to tighten its practices.
Citizens Advice Scotland asked borrowers to complete its survey and to let it know whether their payday lender had stuck to the voluntary code of conduct pledges that it had asked the industry to sign up to. I think that Kezia Dugdale gave a little information from that. There was some good news. Some 76 per cent of people reported that the lender had made it clear how much it would cost in total to repay the loan, and 77 per cent were told how the repayment would work.
However, some of the other statistics are particularly depressing. Only 35 per cent of the lenders checked a person’s personal finances before giving them a loan, only 20 per cent asked for documentation to help to ensure that the person could afford to repay the loan, and only 2 per cent checked personal finances to see whether the person would be able to pay back an extended loan.
It is therefore clear that we need to take more action to change the sharp practices of the industry. I would welcome any proposals in that regard—Ms Dugdale set out some. We need to ensure a better outcome for the people whom we represent.
I thank Kezia Dugdale for securing the debate.
I remind members that speeches should be three minutes long, if possible.
12:47
I am sure that many of us in the chamber will have been involved in campaigning against payday loans in our areas. I, too, thank Kezia Dugdale and congratulate her on securing the debate.
I welcome the Financial Conduct Authority’s latest plans to regulate the payday loans industry, which would mean the introduction of stricter requirements, such as affordability checks on the borrower, a crackdown on advertisements, and limiting loan rollovers to two. Although those stricter requirements will go some way towards addressing the issues with the payday loans industry, they are—as the motion says—just the “beginning”; more needs to be done.
Payday loans cause financial misery for many people. The industry is a predatory one that preys on those who are already struggling financially. That can be seen in the influx of people who are going to citizens advice bureaux throughout Scotland to get advice on their increasing debt resulting from payday loans. Those debts get worse at this time of year as people struggle to juggle the financial pressures of Christmas with the rest of their bills.
In Scotland, we do not have to wait for the Westminster Government to take action on the industry; we could and should do more right now. Regulation of the industry is a reserved matter, but we could look at other options, such as working with councils and credit unions to offer alternatives, and establishing a loan guarantee fund in Scotland.
Labour councillor Joe Cullinane is leading the way in North Ayrshire Council. He recently lodged a motion that urged the Scottish National Party council to look into how the council can best support credit unions and promote financial literacy and affordable lending. It is also hoped that the council will consider measures to limit the number of payday lenders, bookmakers and pawnbrokers on our high streets.
The Scottish Parliament and councils across Scotland have the opportunity to work with credit unions. An example of that is the excellent financial inclusion project that is run by First Alliance in Kilwinning, which is funded by the local council and the Scottish Government to offer people an alternative to payday lenders. We could offer extra support to credit unions through a loan guarantee fund, which would allow them to lend to riskier clients on the basis that the risk of default would be borne by the Scottish Government instead of by the credit union. That would allow credit unions to offer same-day credit and reduce risk from defaulters. Perhaps the minister will tell us today what the Scottish Government’s position is on establishing a loan guarantee fund.
I am pleased that the Scottish Government has adopted the wealth warnings that the debtbusters campaign was pushing for, which highlight the dangers of payday loans this Christmas throughout the “12 days of Debtmas”.
However, of course, payday loan companies constantly bombard people with texts and phone-calls to offer them loans. Many people already understand the dangers of payday loans, but they do not know of alternatives for a quick loan. We can and should be offering viable alternatives.
Although we have started to address the problem, we need to accelerate the work with councils and credit unions in order to make sure that affordable alternatives exist, and we need to establish a loan guarantee fund.
12:51
I pay tribute to Kezia Dugdale for her continued pursuit of this matter and for securing today’s debate.
With the winter afoot, many Scots find themselves turning to payday loans, but unfortunately many are still unaware of the dangers that these seemingly helpful loans pose. Some observers contend that the short-term loans offered by payday lenders are important because they provide a lending option for those who otherwise would not qualify. The problem is that any benefits that payday loans offer are far outweighed by their risks. Borrowers commonly face interest rate percentages in the thousands, which makes it difficult for them to pay off their loans and forces them to roll their debt over for later payment, incurring further interest and fees in the process and causing arrears to impede their lives heavily. Many become trapped in a vicious circle where they borrow continuously to pay their arrears.
StepChange found that the average Scots payday loan debt was £1,529 and that a staggering 65 per cent of clients with a payday loan had contractual obligations worth more than 100 per cent of their income, making the loans impossible to pay off. Given that perspective, it is important to acknowledge the FCA’s new regulatory measures. However, many of them will not be implemented soon, and we have seen payday lenders bolster advertising just in time for Christmas, as Kezia Dugdale highlighted.
To address that, the Scottish Government created the 12 days of debtmas campaign to encourage people to borrow from credit unions, which have far lower interest rates, making borrowing much cheaper and repayment much easier.
As my colleague Jamie Hepburn highlighted, borrowers overwhelmingly reported to Citizens Advice Scotland that payday lenders are not adhering to the voluntary code of conduct. Thousands of Scots have felt heavy pressure from debt due to payday obligations. The industry’s reckless business practices are abhorrent and must be curbed.
Currently, payday loan regulation falls within the OFT’s jurisdiction. Last May, a report detailed the OFT’s failure to regulate lenders. The report found that when lenders were in violation, punitive measures were rarely, if ever, taken against them, and that when such measures were taken, they were mild. The investigation concluded that the OFT was too “passive” in its role as regulator.
The UK Government has proved that it cannot effectively manage the payday loan industry. More stringent measures need to be taken. When regulatory responsibilities are transferred from the OFT to the FCA in April, the FCA plans to introduce mandatory affordability checks, two-time roll-over and continuous payment limits, advertising restrictions and consumer education requirements, all of which are important and welcome. However, more must be done to control such lending.
The Scottish Government is concerned that those measures are not enough to curb the payday loan industry—a point that has been put plainly to the UK Government on several occasions. In September, Fergus Ewing met OFT officials to encourage tougher regulatory action.
Citizens Advice Scotland recommends an independent study to determine the point at which borrowing becomes too expensive. Similar measures have been successful in the United States, Australia and Canada. Of course, capping interest rates is one of the most crucial steps in reining in debt.
The Scottish Government is also taking action. This year’s alterations to the debt arrangement scheme are meant to assist those struggling with high-interest obligations. The DAS has expanded by 40 per cent. Under the scheme, a debt payment programme can be set up, which can result in interest and charges being frozen and can stop creditor harassment.
Of course, we are limited in what we can do. Independence would give us the freedom to ensure the accuracy of affordability checks and introduce our own rate caps. With such control, Scotland would be in a better position to protect consumers who have been failed by successive Westminster Governments.
12:55
I congratulate Kezia Dugdale on securing the debate, on the work that she has done on the issue and on the way in which she put forward her arguments today.
It is beyond doubt that action is required on the issue due to the size of the industry and its rate of growth, and, probably most important of all, the level of concerns raised by constituents directly with MSPs, MPs and councillors and with citizens advice bureaux and other organisations.
It is, therefore, right that we support the FCA’s proposals, which were outlined on 3 October, as the motion suggests we do. Other members have outlined what those proposals are, but I mention the proposals on clear and fair advertising, on including information about where people can find free debt advice, and on setting a limit of two on the number of times that a loan may be rolled over and the number of times that a lender may take payments from a customer without the customer authorising that. All those measures are to be welcomed.
Subsequent to the lodging of the motion, and to the FCA’s proposals, the Chancellor of the Exchequer stated that controls will be introduced on charges, including arrangement and penalty fees, as well as on interest rates. The important thing is that we get that right.
Kezia Dugdale and others have stated that credit unions are part of the answer. That is beyond dispute—I think that everyone in this chamber would agree with that. However, as we have heard, in 2012, the payday loan industry was thought to be worth more than £2 billion, incorporating a potential 8 million new loans in that single year. As well as dealing with the penalty fees and interest rates, we must discuss the extent to which credit unions can fill that gap. I would be interested to hear the minister’s thoughts on that. Even though good progress has been made, I do not think that using credit unions to fill the gap in the short and the medium term will be easy.
12:57
I commend Kezia Dugdale for securing the debate and the members of the debtbusters campaign, who have continued to keep the country focused on the issue. I also commend the citizens advice bureaux, which are at the forefront of supporting and advising those who are affected.
As has been mentioned, earlier this month, Ofcom reported on the rise of the adverts that promote payday loans. It indicated that our children watch 70 payday loan adverts on television each year, and stated that research has revealed that in the past four years there has been a 2,235 per cent increase in the number of payday loan adverts on television. Each adult saw an average of 152 payday loan adverts in 2012. Martin Lewis, the consumer champion who founded moneysavingexpert.com, indicated that the statistics proved that payday lenders are grooming the next generation of customers to see as normal an extremely abnormal form of lending.
It has been said that the industry charges interest of up to 5,000 per cent annual percentage rate. We are talking about an industry that creates a millstone to put around the necks of many families who find it difficult, and sometimes impossible, to escape.
In 2013, the OFT focused on 50 leading lenders and gave them 60 days to rectify shortcomings, including the failure to properly assess risk and the ability of customers to pay, aggressive debt recovery plans and the lack of proper explanation of the customer’s responsibility for repayments.
From April next year, the FCA will provide a form of oversight, and I hope that we will see a more aggressive reflection of how the industry should be viewed. The whole environment reflects a Gordon Gekko approach to financial provision in which greed is good. For some in our communities, a payday loan might be a short-term solution to consumer need, but for many it is a burden, a yoke or a slippery slope leading to fear, stress and family disharmony.
What can we ask the Scottish Government to do? It could mount an education campaign, promoting the downside to involvement in the industry. It could also encourage the FCA on licensing criteria and promote support for credit unions and ethical banks that seek to provide appropriate credit for people who need it.
13:01
In addressing payday loans, it is useful to consider how we got into this unacceptable position. I am old enough to remember when employees got a weekly pay packet with real cash inside. In those prudent days, bills were paid weekly and the surplus was carefully nurtured. Most important, incomes at the lower end of the spectrum were much higher in real terms than they are today. Wealth and income inequality have increased markedly over the past 30 years, and the movement towards paying employees monthly in arrears helped to fuel the credit industry, which deregulation aided and abetted.
Thatcher’s economic plan depended on a credit boom that created a false sense of wellbeing. The buy now, pay tomorrow approach was heavily promoted as consumerism really kicked off, and banks expanded dramatically as they were progressively deregulated, until the inevitable credit crunch struck. The same economic plan that shut down our industries and terminally impoverished communities relied on making us addicted to credit and creating a huge expansion of financial services to fill the black hole in our economy. All our economic eggs were put into one basket.
Sadly, in such an unequal society, the recent recessionary pain is visited most on those who are least able to bear it. The Scottish Government, on a reducing budget, simply cannot mitigate all the pain in Scotland, just as it cannot regulate the banks or legislate to curb the wicked excesses of payday lenders. All that we can do is lobby the UK Government and advise consumers. I know that the minister has been actively engaging with the UK Government in an attempt to persuade it to regulate the industry.
Against that background of 30 years of increasing inequality, the Scottish Parliament does not have sufficient levers to create a fairer and more equal society in a meaningful timescale. That is the real cure for these ailments, as there will always be those who seek to prey on the poor and the vulnerable. I am glad, therefore, that the UK Government has at last indicated a commitment to regulate payday loans, although I fear that it will not go far enough. As matters stand, it appears that it will be too little, too late, as we have come to expect from Westminster.
I can only contrast that with the Scottish Government’s rapid action, earlier this year, to replace stamp duty with the land and buildings transaction tax, quickly moving to deal with long-standing concerns that Westminster had failed to deal with for many years. In a world that moves at an ever-faster pace, it is necessary for Governments to move quickly to deal with obvious problems such as payday loans. I am also glad that the Scottish Government set up and moved quickly to improve the debt arrangement scheme that Kenneth Gibson described. It has recently taken steps to allow the earlier freezing of interest on payday loans and other debts, which is providing a means for financially distressed people to get back on their feet while avoiding bankruptcy.
The evidence for robust regulation of payday loans is overwhelming. I hope that all members of this Parliament unite and send a very clear message to Westminster that that is the case. Beyond that, we need a game changer if we are to tackle inequality properly.
Mr MacKenzie, please close now.
I suggest that the opportunity for such a game changer will come on 18 September next year.
Thank you very much. I would be grateful if members could stick to three-minute speeches
13:05
I thank Kezia Dugdale for securing the debate on this important subject, and for her on-going work on the issue.
I, too, welcome the opportunity to raise awareness of the impact of payday lending on individuals and families who felt that they had no option but to apply for a short-term loan when that next pay day was too far away, or when there was not enough food in the cupboard or money for the electricity meter or bus fares to get to work or college.
It is not surprising that people turn to that form of credit, because the ubiquity of advertising for payday loans in our newspapers and on our televisions and radios is remarkable. Last year, that accounted for 1.2 per cent of all advertising on TV in the UK. Kezia Dugdale highlighted that, in 2008, payday lenders bought 17,000 ad spots; last year, that number had risen to 397,000. More than one in 100 ads was a payday loan ad. The non-stop barrage normalises payday lending in our culture. As Graeme Pearson noted, according to Ofcom research, children aged four to 15 saw millions of ads from payday lenders. We have heard that very young children are pestering their parents to apply for a payday loan.
We know, too, that people turn to such loans as a last resort. In the past three years, 6 million Britons have been declined credit by their bank. Affordable alternative credit is part of the solution.
The number of clients with arrears in priority areas such as gas, electricity and rent has increased significantly. Credit is being sought not for luxuries but for everyday living costs. In the face of inflation-busting price hikes by the big six energy companies, it is not surprising that energy arrears affect more than one in 10 people. Organisations such as Citizens Advice Scotland and StepChange are working incredibly hard, hearing from and seeing a notable increase in the number of people seeking their expert help in the face of rising personal and household debt.
When a person does not have £10, £10 of debt is a problem. However, a growing number of high-income clients are approaching those invaluable charities, too. In addition, although average unsecured debt has been falling in the UK for the past five years, more than 10 per cent of StepChange client debt in Scotland last year was due to payday loans; that was the largest share among the home nations.
Many clients with payday loans have contractual payments that are worth more than 100 per cent of their income. Citizens Advice Scotland has reported cases in which payday loans were received by clients who were unable to repay that loan, so the vetting was inadequate. I was horrified to learn of the case of a client in a citizens advice bureau in the east of Scotland whose payday lender contacted his workplace and spoke to his colleagues about his outstanding debt and, even though he had set up an affordable repayment schedule, the agent was demanding full payment.
When I first saw an advert for payday lending on television, I thought that there was a typo in it, because I simply could not accept that it could be possible or legal to advertise interest rates of almost 3,000 per cent or higher. Those of us on the Economy, Energy and Tourism Committee know that people do not purposely lead themselves into debt; they enter a credit agreement with the best of intentions, but sometimes employment and family circumstances change with little notice.
Along with other members in the chamber, I am absolutely committed to do all that I can to mitigate the impacts of payday lending.
13:08
I am conscious of time, so I will be very quick.
First, I thank Kezia Dugdale not only for giving us the opportunity to have the debate but for all her good work in bringing forward the debtbusters campaign and the general debate on the issue. As has been mentioned, that has brought some success, but it has been limited because although we have set out a plan to prevent more people from becoming involved with payday lending companies, too many are already caught in the trap.
The information that was provided by StepChange Debt Charity shows a dramatic rise in the number of people in my constituency who are seeking help with payday loans. In 2012, 16 per cent of the charity’s clients in the Inverclyde Council area had payday loans. That figure jumped to 31 per cent in the first three months of 2013. Between 2011 and 2012, the average amount owed by my constituents who were involved with payday loan companies increased by £728 to £1,957.
Mike MacKenzie mentioned some of the issues about getting into debt, but this is a different type of debt. It affects people who suffer financial exclusion. People in this country happily live with £60,000 or £100,000 of debt, but those who use payday loans do not have a credit rating. They are excluded, which is why they have to go to payday loan companies to get the help and credit that we all take for granted to get us through our lives. The clue is in the name: payday loans. It is not a coincidence that, this week, the Joseph Rowntree Foundation told us that those people were the group with the biggest increase among those who are in poverty.
The wider issues must be recognised. Although we can control and regulate the industry, we cannot control and regulate the need for people to get access to credit. What we can do with credit unions, for instance, is good, but the fundamental problem is that even people in work cannot escape the poverty of benefits or create job security for themselves. They cannot even create security for a single shift because of the inappropriate use of zero-hours contracts.
Is it any wonder that, because of the situation that such people face, they are powerless to get from a Monday to a Friday? Some of them walk home on a Thursday night because they do not have the bus fare.
Will Duncan McNeil give way?
No; I will not take an intervention because I am running out of time.
You must conclude.
Payday loans will be an issue irrespective of the constitution. It is not good enough to say to the poor that they should wait until we get independence, as has crept into the debate. That is not acceptable.
How do we address the issue? How do we use the powers of local government and the Scottish Government with the procurement pound and the public pound? How do we engage with employers? It used to be that someone could go to their employer and get a loan for a week or an advance on their wage.
Mr McNeil, you must conclude.
How do we engage those people to deal with the problem that we have here and now?
I thank those members who curtailed their speeches, thus allowing me to call everyone. I ask the minister to respond to the debate in a maximum of seven minutes.
13:13
I am very pleased indeed to have the opportunity to debate this important topic, especially at this time of year. I thank Kezia Dugdale for giving us that opportunity and praise all the members who contributed to the debate and made substantial speeches on a variety of points.
I do not propose to rehearse all the statistics, some of which I was planning to use, but I underscore the Scottish Government’s view that the uncontrolled growth of payday lending in Scotland and the UK has been one of the causes of extreme social misery and hardship in our times. It is a relatively new social malaise and disease. It did not really exist about a decade ago, and there are not many other social scourges about which we could say that.
Will the minister give way?
I will in a minute, if John Wilson will bear with me.
It is beholden on us all, irrespective of party politics, to do our best with the powers that we have and to urge those in Westminster who have other powers to address the matter.
It is clear that we have argued consistently since Margaret Burgess first raised the matter in a members’ business debate—the first one to which I responded in this session of the Parliament—that the lack of a cap on interest for payday loans in the UK is a serious omission, which allows companies to charge interest rates of more than 5,000 per cent, which seems quite extraordinary. We felt that that was wrong simply because many countries in the world have a cap on interest rates. I think that 37 states in America have controls on lending. In countries such as Germany, France, Finland and Australia, there are caps on the amount of interest that can be charged. To have a cap on interest is the norm, but in the UK it is the exception.
Therefore, as the minister, I raised the issue a number of times with the UK minister, Norman Lamb, in April 2012. At that point, the response was that there was a lack of evidence and that a cap would lead to more consumer detriment. I respectfully disagreed with that and persisted in seeking to get the UK Government to introduce a cap. In March of this year, I raised the issue with the current minister, Jo Swinson, and with the chairman of the OFT, and I met Jo Swinson again just a month or so ago to urge her to introduce a cap.
I am very pleased that, as a result of all the pressure that has been exerted by parties and many others, a cap is to be introduced, but the decision not to introduce it until 2015, which I understand is the UK Government’s position—I hope that I am not misrepresenting it—is the wrong decision. I think that a cap can be introduced in April of next year, so yesterday I wrote to Jo Swinson to urge her so to do and to hold an immediate consultation on the issue. There needs to be a consultation on what level the cap should be set at, whether it should apply to monthly interest and whether—as happens in Australia—it should include a limit on the amount of charges.
This is not a matter of party politics; it is about something that we can all see is necessary. The control of a cap, among many others, is needed and it must be implemented as quickly as possible. We need to get it right, but I say, with respect, that I think that we can get it right sooner than 2015. That is why the Scottish Government has said that the cap should be introduced in April next year, so that we can join the many other countries in the world that regard this form of venal usury as socially unacceptable.
It is ironic that, just this morning, I received on my mobile phone—from a company that I will not name for fear of inadvertently advertising or recommending it—an unsolicited text message that stated, “Need a loan for Christmas? Get cash in your account today with up to three months to pay back.” I have had no dealings whatever with that company; indeed, I have never heard of it. Members can rest assured that I will write to the FCA to complain about it.
As we have heard from members such as Alison Johnstone, the behaviour of some such companies is absolutely unacceptable. In addition to the cap on interest rates, mandatory affordability checks need to be carried out, as Kez Dugdale mentioned. There also needs to be a curb on advertising, which NUS Scotland has rightly called for. Councils throughout the land do good work on that. Further thought needs to be given to restrictions on continuous payment authorities, which, as Kez Dugdale rightly said, give companies the right to plunder people’s bank accounts. Frankly, that is absolutely wrong. On some occasions, hundreds of attempts have been made to go into people’s accounts. Every attempt leads to more bank charges. That is quite simply scandalous, yet it is happening because it has not been properly regulated.
The Scottish Government has done many things to address the issue by using the powers that we have to best effect. To be fair to all the parties that are represented in the chamber—and the Liberal party, which is not represented in the debate—we have done so with cross-party support. Through the Bankruptcy and Debt Advice (Scotland) Bill, we will make the provision of advice mandatory. We want there to be a financial national health service in this country, and we want to ensure that young people who are at school—many schoolchildren are listening to the debate in the gallery—learn about such matters. Why do we learn about physics, maths and history, yet we do not learn—or at least, we do not learn sufficiently well—about how to manage money? As a country, we need to do that. Much is done by the debt advice sector, banks and others, but we need to do more.
As Mike MacKenzie indicated, we have made changes to the debt arrangement scheme, which freezes interest and charges earlier, thereby saving people who have payday loan debt significant sums in interest.
We have undertaken major marketing campaigns with the excellent partnership of the Daily Record, which has led the charge, as it often does on the social issues of the day. In November, I launched in Grampian the 12 days of debtmas campaign, which has had an extraordinary response.
Presiding Officer, my time is nearly up.
Will the minister take an intervention?
I think that I am restricted to seven minutes; otherwise, I would give way.
It would be better if Fergus Ewing concluded.
I apologise to Mr McNeil, but I am under a time order, which I must comply with.
The Scottish Parliament has spoken clearly today, as we will next week in John Wilson’s credit union debate. I thank members for participating in the debate. I will continue to do everything that is in my power to address the extreme social misery that payday loans cause in Scotland today.
13:20
Meeting suspended.
14:00
On resuming—