Consumer Credit and Payday Lending

Thank you for contacting me about consumer credit and payday lending.

I am committed to ensuring that more households can manage unexpected costs through affordable credit. This means establishing a payday lending sector which is well regulated, and encouraging the growth of the social lending sector. 

The Financial Conduct Authority (FCA) established, reformed and toughened rules governing payday lending in 2015, which included a holistic cap on the total cost of payday loans, so that no payday loan consumer should have to pay back more than twice what they borrowed. In addition, the FCA is consulting on a further package of regulatory reforms for the high-cost credit market. I believe that more can and should be done to build on this progress.

That is why I welcome the measures outlined in the recent Budget to make credit even more accessible, and help people manage problem debt. The Budget proposed a 'breathing space scheme', which would allow for a 60 day protection period from debt recovery action by creditors. The policy, on which there will be a consultation, is intended to allow people time to work out a path to consistent pay-back of debt. 

The Budget also announced the introduction of a pilot scheme for interest free loans. There will first be a feasibility study carried out by the Government in collaboration with banks and debt charities. In a similar vein, a new pilot scheme of prize-linked saving schemes for credit unions will be introduced. Credit unions should be supported as they offer affordable borrowing schemes and help consumers build up savings. 

Budgeting Loans are available to people who have been in receipt of certain benefits for more than six months, and who may be tempted to take out a loan from a payday lender. This secure alternative offers interest free loans, ranging from £100 to £812, depending on an individual's situation. The rate at which a Budgeting Loan is paid back is determined in accordance with an individual's particular benefit arrangements.

I am also glad the Government is cracking down on unlawful lending, or 'loan sharks'. There are around 300,000 people in Britain who are in debt to loan sharks, and important steps are being taken to help them. In April 2018, £5.5 million of funding was announced for investigations into illegal lenders and for prosecuting them, as well as assisting the victims.

I hope this letter reassures you that action is being taken to help people access affordable and reliable credit. I will continue to make my voice heard to defend the interests of hardworking people.

Thank you again for taking the time to contact me.