My Lords, I am truly grateful to noble Lords for raising the thorny issue of payday lenders and for the informed debate that ensued. I will first discuss the amendments in the names of the noble Lord, Lord Alton, and the right reverend Prelate the Bishop of Truro. I am grateful to the right reverend Prelate the Bishop of Norwich for speaking in his stead.
The Government share the concerns of noble Lords that this market has caused serious problems for consumers, with unscrupulous lenders taking advantage of vulnerable consumers. The Government have acted decisively to fundamentally reform regulation of the payday market. The Financial Conduct Authority’s new, more robust regulatory system is already tackling sources of consumer detriment in this market. The Government have legislated to require the FCA to introduce a cap on the cost of payday loans to protect consumers from unfair costs, which will be in place by 2 January.
We are committed to tackling abuse in the payday market wherever it occurs, including in the marketing of these loans. The Government strongly agree with noble Lords that it is unacceptable for payday lenders deliberately to target vulnerable consumers with their advertising material. However, it is clear that a robust set of measures are now in place to protect the vulnerable from such practices. Payday loan adverts are subject to the Advertising Standards Authority’s strict content rules. The ASA enforces the rules set out by the UK Code of Broadcast Advertising, or the BCAP Code. The BCAP Code requires that all adverts are socially responsible and that young people are protected from harm.
These rules specifically prohibit payday loan adverts from encouraging under-18s either to take out a loan or pester others to do so for them, and the social responsibility requirement of the rules prohibits lenders
from deliberately targeting vulnerable people such as problem gamblers. The ASA has powers to ban adverts which do not meet its rules and has a strong track record of doing so: since May of this year the ASA has banned 11 payday loan adverts, including action against adverts which the ASA adjudged to trivialise payday loans. In addition to this, the FCA has introduced tough new rules for payday adverts, including the introduction of mandatory risk warnings and a requirement to signpost free debt advice. The FCA also has powers to ban misleading adverts which breach its rules.
It is important to understand the scale of this issue, and that any action is informed by evidence. Ofcom research found that payday adverts comprise a relatively small 0.6% of TV adverts seen by children aged four to 15—around one a week. As the noble Lord, Lord Alton, mentioned, the Broadcast Committee of Advertising Practice is currently reviewing how its advertising rules relating to the protection of children are applied to payday loan advertising on TV. The Government look forward to the findings of the review, which we expect to be published before the end of the year.
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I turn now to the proposal for a levy on payday lenders as set out in Amendment 105P. The Government believe that the key to tackling problem payday lenders is tougher and better regulation. As I explained earlier, the Government have fundamentally reformed regulation of the payday market with the introduction of the FCA’s tough new regime, including a cap on the cost of payday loans. The amendment proposes to impose a levy on lenders to support free debt advice and credit unions. The Government believe in the importance of free debt advice and have put the provision of such advice on a sustainable footing through the Money Advice Service. Free debt advice is funded by a levy on lenders, once they are fully authorised by the FCA. Payday lenders will also contribute to this levy. The noble Lord’s proposal would duplicate the existing funding arrangements for debt advice.
It is also important to note that the FCA is taking steps to ensure that vulnerable consumers are aware of the free debt advice that is available to them, including imposing signposting and risk warning requirements on payday lenders. The Government have provided significant support for credit unions by investing £38 million to support their sustainable growth. We have also raised the interest rate that credit unions are able to charge, and we have undertaken a call for evidence on how best to support the growth of the sector. The findings of this will be published shortly. The Government therefore firmly believe that consumers will be best served by the tough new regulatory regime and the Government’s ongoing support for free debt advice and credit unions.
I turn now to the issue of data sharing in the payday market, which is addressed by Amendment 105Q. The Government share the concerns of noble Lords that credit data-sharing is key to proper affordability assessments and promoting a competitive market. The FCA has put in place binding requirements around
lenders’ affordability assessments. The FCA’s rules are based on the principle that money should be lent to a consumer only if they can afford it. Recent redress schemes highlight that firms will not get away with ignoring the FCA’s requirements.
To support effective affordability assessments, the FCA has made it clear to payday lenders and credit reference agencies that they must identify and remove any data-sharing blockages involving payday lenders as a matter of urgency. In its consultation on the cap on the cost of payday loans, the FCA stated that it expects to see more than 90% of current market participants and more than 90% of loans being reported in real time by November. In order to improve the coverage of real-time databases, firms will also need to share data with more than one credit reference agency. The FCA will set out its assessment of progress in this area alongside the publication of its cap rules later this month.
Perhaps I may now address the comments made by noble Lords during this excellent debate. The noble Lord, Lord Alton, and the right reverend Prelate the Bishop of Norwich raised the issue of financial education for children and pointed out that it is woefully inadequate. The Government have made financial literacy statutory for the first time as part of the citizenship element of the national curriculum for 11 to 16 year-olds. This will involve strengthening the curriculum in mathematics in order to prepare young people to make sound financial decisions. The noble Baroness, Lady Drake, raised the issue of the Government stimulating demand for debt advice. As I have said, the Government have put free debt advice provision on to a sustainable footing through the Money Advice Service. The FCA requires payday lenders to signpost free debt advice, including in all financial promotions and advertisements.
The noble Lord, Lord Harris, talked about tightening up on payday lenders, but that might have the adverse effect of directing more people towards illegal moneylenders. This is an important point. The FCA has designed the cap to meet the needs of UK consumers and it is conscious of the risk presented by illegal money lenders. Illegal lenders are policed by the Illegal Money Lending Team and by the FCA using its new powers. Both the FCA and the IMLT can prosecute illegal lenders.
In other contexts, products unsuitable for children, such as alcohol and those related to gambling, cannot be targeted at children—a point made by the noble Lord, Lord Alton. Payday ads are not generally seen on children’s TV. The main trade body and the largest firm, Wonga, have specific policies not to advertise on children’s TV. Ofcom has also found that over a quarter of the TV watched by four to 15 year-olds is broadcast after 9 pm, so that placing additional scheduling restrictions may not cause children to see fewer adverts. Content rules are key, and these are in place.
The noble Lord, Lord Alton, and the right reverend Prelate the Bishop of Norwich said that 80% of payday loan ads are shown before the watershed, so it is insufficient that adverts are not shown in broadcasting directed at children. First, it is worth noting that Ofcom found that children aged four to 15 see, on average, 1.3 payday ads per week. Children watch TV
after the watershed; Ofcom found that over a quarter of TV was seen by that age group of children. So the risk is less scheduling. ASA rules are strong and effective and specifically ban trivialisation or the targeting of children. It bans ads which break these rules; for example, by making it appear easy or indeed non-risky to get a loan.