I regard payday lending as a new industry. We have heard talk about how Labour did nothing for 13 years, but in the 23 years
I worked in a citizens advice bureau—I left in 2010—I did not see people with payday loans. I think we saw our first person with a payday loan in 2010. It was always the home credit industry that people came to us about. The payday loan industry—and, in particular, the way in which it targets its market—is a new thing.
I wish to speak to amendment 155, which relates to the importance of a high-cost payday lender reporting in real time to a third party. The industry is really keen to embrace new technology when it suits it to do so. It has phone apps, and it advertises on television and online. New technology is meat and drink to it. However, it is less keen to operate a real-time database. It has had two years in which to do so voluntarily, and it still cannot come to an agreement on it.
Part of the reason for that could be that the industry is not keen on guidance. A lot of our payday lenders have American ownership. When I was at a conference recently, I was harassed by some of those American owners asking me what the rules were. I started to explain the guidance, but they were not interested. They just wanted to know about the rules. If something is not written down, they do not want to do it. They do not want to be the first, or just one of a few, to do something. For that reason, this provision needs to be mandated.
The present reporting system, involving a period of 30 to 60 days, is completely inadequate for a short-term, high-cost loan. A constituent who came to see me recently had taken out 14 payday loans in a week. Yes, that was irresponsible borrowing. I could see that he had been desperate, but it was also irresponsible. The system allowed him to do it. Had the lenders had a real-time database when they agreed to those loans, we could have got them for irresponsible lending. Their excuse, however, was that they did not know how many loans he had already taken out. The lack of a database gives them an excuse to lend irresponsibly, without penalties.
We also need to consider the responsible customers who pay back their loans on time and for whom taking out a payday loan is a perfectly rational decision. Perhaps their fridge is broken and needs to be replaced urgently, and they are expecting some money at the end of the month. Taking out such a loan in those circumstances could be more sensible than going to a company such as BrightHouse. Those responsible customers get no credit for paying back on time, however, because there is no database and because it is not mandatory to report their repayment record. In fact, on occasions, they are penalised for taking out a payday loan. We need a system that will help people to build up a record of creditworthiness, to allow them to get into the mainstream credit market.
As we have heard from my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), the present system can deter new entrants to the market. Companies tell me that they would like to get into the market, and that there is a gap for providers of loans between £500 and £1,500 taken over six months to a year at an interest rate of around 30%. However, the business risk is too great, because there would be no way of knowing whether their customers already had payday loans and when they had taken them out. Entering such a market would add to their business risk, and they also worry that raising their rates would involve a degree of reputational risk.
The Government should look again at this matter and consider mandating the introduction of a real-time database and reporting to a third party. That is important if we are to protect customers and lenders. It is also important if we are to help people to move into a credit stream with lower interest rates, and to help new entrants to move into the market, which we all agree is vital.
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