Why even Conservatives should support Stella Creasy this Thursday


11:30 am - February 1st 2011

by Carl Packman    


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This Thursday a motion from Stella Creasy MP and Justin Tomlinson MP will be moved in the House of Commons calling for Government to give regulators the power to cap the total cost for credit.

In brief, the consumer credit (regulation and advice) bill seeks to integrate credit services with the post office network, impose a levy on consumer credit agencies to fund debt counselling and advice services, and give councils greater powers to regulate the amount of credit agencies in their local area.

Creasy has received support for her bill from the End Legal Loansharking Campaign, and though the emotive word “end” – as in to ban – has been used, in actual fact what the bill recommends is far more clever in that it seeks to find a mechanism to reduce unrealistic rates attached to many high-street lenders, with the aim of reducing credit dependency altogether.

During her adjournment debate held on 9 November 2010 in the House of Commons, Creasy noted 1 in 10 customers of legal loan sharks earn under £11,000 per year, and that even lenders playing by the book are able to okay loans at 272% APR (compared to 9-10% by mainstream lenders).

The inclusion of a Tory MP (Tomlinson, who is MP for Swindon North) will give it cross-party appeal, but the very notion of “regulation” seemed to be met with resistance from some Conservatives. This is peculiar given the bill is about bringing down personal debt, and providing a gateway towards a more savings-based culture.

Before he was Prime Minister, David Cameron addressed an audience on progressive conservatism, rallying against “Too much banking debt, too much personal debt and too much government debt”. Uncontrollable personal debt is clearly at odds with modern conservatism; Creasy’s bill should be seen as a solution.

OECD figures revealed that in each year from 2005 to 2008 British households were running negative savings, but thankfully the consumer credit (regulation and advice) bill seeks to address these very concerns.

Even Conservatives should be able to support Stella Creasy’s motion on Thursday.


A longer version is at Though Cowards Flinch

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About the author
Carl is a regular contributor. He is a policy and research analyst and he blogs at Though Cowards Flinch.
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Reader comments


End Legal Loansharking Campaign

Because illegal loan sharking is so much better? As warnings go ‘you may lose your home’ seems to me qualitatively better than ‘you may lose your fingers’.

2. Chaise Guevara

@ 1

Interesting point, that.

A classic case of treating the symptom while ignoring the cause. That cause being the fractional reserve banking system.
Unfortunately an earlier Bill that would have been the first step to properly addressing the problem got absolutely nowhere. http://www.youtube.com/watch?v=HMGr-OuXihg

If the Government had thrown a small fraction of the money they spent bailing out Northern Rock, RBS and HBOS into funding credit unions and other small mutual lending organisations, there would be no necessity for poor people to use loan sharks, legal or otherwise.

But of course there would have been no profit in such institutions and therefore no tax revenues to be had.

Sheer hypocrisy.

How are people forced to use loan sharks?

6. Chaise Guevara

@ Richard

Where does it say “forced”?

During her adjournment debate held on 9 November 2010 in the House of Commons, Creasy noted 1 in 10 customers of legal loan sharks earn under £11,000 per year, and that even lenders playing by the book are able to okay loans at 272% APR (compared to 9-10% by mainstream lenders).

I’d have thought that this is because the loans are extremely short term, and there is a high rate of default. If you cap the amount of interest that can be charged then legal lending of this sort will probably stop altogether. Hurrah. But prohibiting supply doesn’t abolish demand (as you’d have thought people might have noticed by now), and directing poor and vulnerable people to illegal loan sharks doesn’t seem to me an ideal outcome.

6 – my point is that there seems to be this assumption that these evil loan sharks take advantage of the poor and vulnerable and must therefore be stopped or curtailed. However, nobody forces these poor and vulnerable people to enter into a contract with loan sharks. They are well aware of what they are getting into.

10. Chaise Guevara

@ 9

Accurate, but it’s still fair to say they “take advantage of the poor and vulnerable”.

“You knew what you were getting yourself in for” has been the rallying cry of the exploiter throughout history, and it’s something that we generally try to moderate. In the perfectly liberal society you would be allowed to sell yourself into slavery, but we’ve banned that.

Also, less bright and/or literate consumers may not really know what they are signing up to. For example, they may not grasp the vital significance of the word “compound”.

I entirely support this bill I do hope it gets through. To those saying “what about illegal lenders” – well, better law-enforcement bolstered by a better-supported credit union culture would help matters greatly. This law is a first step towards such a culture.

Richard @ 9

However, nobody forces these poor and vulnerable people to enter into a contract with loan sharks. They are well aware of what they are getting into.

That is true.

They are not compelled except, perhaps, by their love for a child that is hungry or needs shoes in order to go to school.

@ Chaise

it’s something that we generally try to moderate. In the perfectly liberal society you would be allowed to sell yourself into slavery, but we’ve banned that.

Also, less bright and/or literate consumers may not really know what they are signing up to.

It is not the role of the state to moderate behaviour or to protect people from their own stupidity.

However their is a potential role in facilitating people to help themselves.

14. Chaise Guevara

@ 13 Pagar

“It is not the role of the state to moderate behaviour or to protect people from their own stupidity.”

Depends on who’s talking. Plenty of people feel otherwise – look at our general attitude to narcotics, for example.

I think preventing people from ruining their lives by endering into a predatory bargain due to sheer desperation is a valid job for the state.

“However their is a potential role in facilitating people to help themselves.”

What would you suggest in this case? One would be offering state loans as alternatives to using loan sharks. Two immediate problems there: people might not want to apply because explaining why they need the loan may involve revealing criminality on their or someone else’s part, and the “no to benefits” crowd would go apeshit.

One would be offering state loans as alternatives to using loan sharks. Two immediate problems there: people might not want to apply because explaining why they need the loan may involve revealing criminality on their or someone else’s part, and the “no to benefits” crowd would go apeshit.

Do you want this state loan company to be at least self-supporting? Because if so, you’re going to have the same issues about high annualised interest charges on short term loans. And if not, then you’re arguing for the state to give more money to poor people – and there are probably better ways of doing that.

The welfare meetings at last year’s Tory conference were sponsored by Cash Converters and Boris Johnson accepted sponsorship for the New Year’s Eve bus service from Wonga (apr of up to 2700%)

18. Flowerpower

Credit unions and microbanks should be encouraged. But rather than cap interest rates, the government should simply make debts arising out of predatory rates of interest unenforceable by the courts, as is the case with gambling debts.

“Uncontrollable personal debt is clearly at odds with modern conservatism” Modern?

It’s at odds with conservatism per se.

@14 Regarding “state loans” you might be interested in this here link:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/On_a_low_income/DG_10018856

There is two concerns that have come up in this comments thread which is quite typical of this conversation, namely:

1) What happens to those people who find themselves in tricky situations, and there are no high street lenders with massive costs? Ending legal loansharking may drive this industry underground, and it’s better to lose your home than your fingers (as Tim J said).

2) Should the state really be facilitating the uncreditworthyness, is that its job?

On the first point, I agree that if you were to end legal loansharking without doing anything else, then the likelihood is that this would be drive underground; dodgy wo/men would come round knocking on your house door saying they can lend you some cash, with interest, if no one else will.

Thankfully, in Stella Creasy’s bill, the motion of which is going to the HoC on Thursday, capping the cost of credit is only one element. The other elements are to link credit unions to the post office network, with the intention of making more people creditworthy – not because credit dependent societies are a high ideal, but government has to act realistically on these issues, and allowing people who find themselves at the moment uncreditworthy is a problem that will not be helped by increased personal debts at the hands of high street shops charging sky high rates.

Credit unions have lower rates of interest and their increased roll out will help settle debt dependency.

Furthermore, Creasy’s bill defines a levy charge to lenders that will go towards financing an advice programme for those who need this the most.

So the bill does seek to end two things eventually: legal loan sharks who charge high rates and personal debt, but there are a range of processes that it promotes to do this to ensure, as best as possible, that money lending is not driven underground.

On the second point, as the premise of the piece was to show why even Conservatives should support the bill, I want to draw attention to the fact that this is not something the markets can solve – at least in the sense that markets are there to maximise profits and efficiency (though I may like to argue the point). Personal debt, as the OECD figures will show, is not healthy; not for individuals and not for society – something modern conservatives (which I don’t mean in a snooty way of course – http://twitter.com/MrHarryCole/status/32449764435951617) can agree with the left on.

To deal with this issue quickly and efficiently, the state needs to play a role in curbing debt dependency by doing those things mentioned above. After all, regulation, which is not the same as statism or nannyism, is not confined to the left.

Stella Creasy’s bill is a very sensible and timely one, and I hope left and right after reading it can join in support of it, and the motion on Thursday.

22. Chaise Guevara

@ 16 Tim

“Do you want this state loan company to be at least self-supporting? ”

I’m not sure I want a state loan company at all, for both the issues I’ve raised and yours. Obviously it would seem odd to lend for very short periods at rates designed for multi-year loans, but then if you lend to people at a higher rate – say 50% for a week – what happens when they default on the payment? It becomes a high-rate long-term loan, which was what you were trying to circumvent in the first place. Tricky.

23. Chaise Guevara

@ 18 Flowerpower

“Credit unions and microbanks should be encouraged. But rather than cap interest rates, the government should simply make debts arising out of predatory rates of interest unenforceable by the courts, as is the case with gambling debts.”

Intriguing. I take it this would mean that there would be a point past which compound interest made the money owned officially “too big” in comparison to the original loan, and therefore unenforceable? So it would only affect a loan that had been defaulted on and had probably been building up for awhile?

For some time I have been concerned about the exhorbitant rates charged on some loans for what are perceived as risky borrowers. The problem of these rates in the legal market may be resolved through statutory caps on the interest rates – indeed that was something that used to happen here. There is a common law cap on extortionate credit bargains and some success has been had in limiting recovery where the rates are very high – I add that most of these have been achieved out of court.

The problem with the bill currently before Parliament is that it imposes additional obligations on the OFT to set the cap and justify it and then goes on to promote the creation of another quango, the office of the Debt Commissioner. In my view hese are not going to address the problems associated with debts and the availabilty of credit in poorer communities – which is where the injustice of extortionate rates exists. They are merely going to drive the business underground or make it more informal and unregulated.

I support the encouragement of credit unions and other organisations to lend to poorer people who often find it impossible to borrow money from the major lenders. Even the major lenders sometimes charge rates that are startling … have a look at the credit charges on some short term loans.

Whatever the rate that is set, it seems to me that it needs to take into account the risk being undertaken by the lender and the borrower. The difficulty that this poses is that apart from setting a rate that is the maximum rate (probably set by Parliament at a higher rate than the campaigner wish to see) that can lawfully be enforced, I suspect that the best answer will be to require a lender to justify the rate they are charging if the matter comes to court rather than an expensive quango. Anything more structured than that will tend to increase the costs of lending and so borrowing … as it is always the borrower that ends up paying those costs.


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