Wales’ Minister for Tackling Poverty, Huw Lewis, has called on UK regulators to take action against payday loan firms whose sharp business practices can trap people in a spiral of debt.
Mr Lewis has submitted evidence to a consultation being carried out by the Office of Fair Trading (OFT), who want to refer the payday loan market to the Competition Commission. The consultation is part of work being undertaken by the OFT into the practices of UK’s 50 payday lenders, a sector worth £2 billion.
OFT research illustrates “a concerning picture of the UK payday lending market” where “lenders prepared to comply with the law and guidance…are driven out of the market”.
Mr Lewis was appointed as the Welsh Government’s first Minister for Tackling Poverty in March, the first appointment of its kind for a UK government.
The Minister, who has a deep concern about the impact of payday loan companies on communities, said: “Payday loan companies are popping up all over the country with a barrage of advertising on TV, online and in our newspapers. As the full impact of the UK Government’s welfare reforms start to kick in I am very concerned that more and more people will be tempted by these loans to make ends meet.
“The Welsh Government is committed to taking action to protect vulnerable people and I call on all UK governments to support this OFT initiative.
“Of particular concern is the evidence that many payday lenders do not comply with basic compliance requirements, such as assessing the affordability of a loan for an applicant. This squeezes more responsible lenders out of the market and allows unscrupulous ones to take advantage of people who are often in dire financial situations.
“The OFT are righty concerned about the resulting lack of competition in this market and I support their view that a full investigation by the Competition Commission is required. I also call on the UK government to consider introducing regulations on the advertising of payday loans, in particular on television.
“I support the OFT’s list of actions that consumers can take, which mirror the advice given by the Welsh Government and the action we are taking.”
Wales has a higher dependence on welfare benefits than Great Britain as a whole, with the latest statistics (May 2011) showing that 18.4% of the working-age population in Wales claiming welfare benefits compared to the Great Britain average of 14.5%.
The Minister is reviewing the Welsh Government’s plans for tackling poverty –and plans include extending networks of credit unions and advice services.
There is a network of 34 credit union offices and 256 collection points across Wales.
A three year, Welsh Government funded programme to increase the assets and membership of credit unions comes to an end in September. And in the next few weeks (by mid-May) the Minister will announce plans for continued action to make credit unions more effective in Wales.
The Minister added: “Credit unions can offer an affordable alternative to high cost payday loan companies. They offer an absolutely critical service and their development is central to our work in tackling poverty and financial exclusion. I am determined to raise awareness of their services and encourage people to contact their local branch.
“We have to supply people with good money advice and alternatives to high-interest loan merchants. I am currently considering a number of options on how best to continue our work.”