The Government is poised to regulate the payday loans sector unless the industry itself creates a robust system of self-regulation.
Speaking at a fringe event at last week’s Liberal Democrat conference in Brighton, deputy chief whip Lord Dick Newby said the Government is ready to take action.
Currently the payday loans sector is regulated by the Office of Fair Trading under the Consumer Credit Act. The OFT started a review of the sector in February 2012, which is due to complete in the second quarter of 2013. As a result of this review it has already fined and revoked the license of one firm, MCO Capital Limited, and taken action to ensure the debt collection practices of Wonga.com have been improved.
Lord Newby said the payday loans sector has told the government it will produce a code of conduct which will protect individuals from abusive behaviour by them.
On 25 July this year four trade bodies that collectively represent some 133 payday lenders – 90 per cent of the market – produced a customer charter. Its members have until 26 November this year to comply with it.
Lord Newby said: “The Government’s view is that if they can do it quickly then that is fine but if they don’t then something will have to be done in this area. Self-regulation is good if you can get it but the track record of self-regulation is mixed.”
He has pledged to lodge an amendment in the Financial Services Bill committing the Government to take action within a year.
The amendment was originally rejected in the Commons but Lord Stevenson is confident that changes to the Treasury team may see it accepted.
Lord Stevenson said: “Now we have personnel changes so maybe when we put down the same amendment in the Lords the Government will be able to accept it. The amendment calls on the financial authorities to come up with a scheme for regulating high-cost loans, or payday loans, within a year.
“The truth is that the people who earn least in our society have the most need to have access to short-term borrowing such a payday lenders so they can just get through the year.”