Jeff Cuthbert, Minister for Communities and Tackling Poverty
There has been much recent media activity on the Payday Loan Industry which Members will have read with interest. I am providing this Written Statement to update Members on discussions I have had with the Consumer Finance Association (the representative body for the 60% of Payday Lenders) and also to highlight our views on the recent announcement by the UK Government on capping the rate of interest for Payday Loan Companies. I will also outline what we are doing in Wales to support people through Credit Unions and Advice Services.
I had a robust, meeting with Consumer Finance Association on the 21 November. I made very clear my deep concerns about the impact of their members’ activities. Payday lenders are certainly not a solution for vulnerable people who find themselves unable to meet their day to day living costs. Borrowing in this way when already in dire straits will only serve to compound their financial difficulties further. This is supported by evidence we have received from organisations such as Citizens’ Advice Cymru who are helping people who have borrowed from Payday Loan companies and have been unable to cope with the burden of the repayments. It was highlighted to Consumer Finance Association the need to ensure that customers of payday lenders are treated fairly and that lending practices are responsibly carried out. Concerns were also highlighted about the 15% of payday loan customers who do not make their repayments on time. These are often the most vulnerable people in society and the impact on them can be quite devastating in terms of mounting debt.
It was stressed the need for Payday lenders to have properly trained staff to ensure that they are making the correct decisions on whether an individual is successful in getting a loan, based on their ability to make loan repayments. It was also outlined to Consumer Finance Association the importance of staff ensuring that individuals are aware of the responsibilities they will have when taking out a loan and the amount of money that they will be expected to pay back.
Of course, the regulation of Payday Loan Companies is not devolved and Members will be aware of the recent announcement by the UK Government to introduce a new law to cap the cost of payday loans. The level of the cap, which has not yet been announced, will be decided by the new regulator, the Financial Conduct Authority (FCA) when it comes into being in April 2014. Also, there will be controls on charges, including arrangement and penalty fees, as well as on interest rates. Welsh Government would very much welcome this move by the UK Government as it aims to reduce the cost of Credit for those who decide to take out a Payday Loan.
Welsh Government looks forward to receiving more information on this as the work develops. It will be interesting to see the detail and the level of cap introduced – both on the interest rate and the administration costs charged by lenders. This will however need to be implemented appropriately. For example, the Wales Illegal Money Lending Unit has found that most loan shark victims have already borrowed or attempted to borrow money from doorstep and/or pay day lenders before falling prey to illegal money lenders. It is important therefore, that the interest rate is pitched at the right level and that the correct level of checks are carried out by the lender and that appropriate information is given to borrowers about their repayment commitments. This will assist with more responsible lending practices taking place.
The Welsh Government does support work that aims to improve access to affordable financial products and also supporting advice providers in Wales to help people who are struggling with unmanageable debt and who need advice. Additionally the Discretionary Assistance Fund provides small payments to vulnerable people who are unable to meet their immediate living expenses or faced with a crisis situation.
A number of grants have been recently announced to support free and independent advice services across Wales. This financial year, the Welsh Government is making over £1 million available to support the Not-for-profit advice sector to provide a range of front-line advice services on a range of issues, including debt and welfare benefits advice. We are also investing almost £2.5 million up until 2015 to support a new project to deliver outreach debt advice in 36 Communities First cluster areas. We know from recent consultation that the location of advice services has a high impact on whether or not some people use them and that people on low incomes generally prefer face-to-face advice.
In terms of our longer term vision, my officials are working with representatives from the Not-for-profit advice sector in Wales, the Money Advice Services and other key stakeholders to ensure that our approach to supporting advice services in future is soundly based on evidence of need and demand and geared towards supporting those people most in need.
We are also supporting work to ensure affordable borrowing together with simple, practical advice on managing your finances. Credit Unions provide these services and can be especially suitable for people unable to borrow money from other providers such as banks and building societies. Earlier this month Welsh Government met with the Archbishop of Wales to discuss the work of Credit Unions. We are working together to promote the message that credit unions provide services that can help and support people throughout Wales. Consideration of the bid by Credit Unions for funding this financial year is being considered and I hope to make an announcement on that shortly.