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Rate Caps for Responsible Credit – Finally also in the UK

ECRC co-founder Debt on our Doorstep with Damon Gibbons from the Centre for Responsible Credit launched a victory on English predatory lenders. 

ECRC has been involved in the development of a legal framework for the UK consumer credit market where predatory lenders had found a vast area for exploiting the poor with interest rates far above the average on the continent. In the campaign empirical research about the effects of interest rate restrictions in Germany and France had played an important role. In a letter for example the Personal Finance Research Centre had argued that interest rate caps would exclude the poor from any credit. Similar facts had been falsely reported on the German credit market where the investigator had “forgot” to look into the enormous importance of overdraft credit for the poor when assessing the accessibility.  Iff had testified several times in London and with the ECRC conferences in Birmingham, Edinburgh and London during the last 20 years the UK had been made a target of efforts to tame the powers of predatory lenders. This European endeavor had also been necessary since the UK banking system made high pressure on Brussels even to stop interest rate ceilings claiming it would have adverse effects on the internal market. IN a study mandated by DG Internal Market (Reifner/Schröder eds Usury Laws: A legal and economic Evaluation of Interest Rate Restrictions in the European Union 2012)  iff and ZEW had revealed the multitude of interest rate restrictions in the EU and provided evidence for their effects on markets, prices and market access especially for the poor.

We cite in the following the report from DOOD:


Interest rates caps – a victory 10 years in the making

Almost 10 years to the day from Debt on our Doorstep’s lobby of parliament launching the campaign against extortionate lending, the UK Government yesterday announced it has finally agreed to introduce a cap on interest rates on payday loans.

Debt on our Doorstep, a national network for fair finance, held a Debt Lobby and Action day at Parliament on Tuesday 3 December 2002 to protest against extortionate lending. The event was supported by a range of national organisations including Church Action on Poverty, the Money Advice Association, Oxfam, New Economics Foundation, the Association of British Credit Unions (ABCUL) and National Housing Federation. Hundreds of people carrying inflatable sharks lobbied MPs to make their point clear. The event was billed as: “an attack on legal ‘loan sharking’ by finance companies who target the poorest in our society. Over 3 million people, mostly on low income, are currently reliant on credit offered by doorstep lenders at interest rates in excess of 160% APR.”

My words at the launch of the event were as follows: ‘If the government is really serious about tackling poverty and the blight of debt, then it must act now to tackle the extortionate interest rates that loan companies are allowed to charge and by making available low cost finance to those most in need. Without action on high cost credit, pledges to eradicate poverty are nothing more than empty promises.’

The lobby was followed up by a report from Richard Murphy, arguing the case for an interest rate ceiling, based on a forensic analysis of the business model of Provident Financial, and concluding there was prima face evidence of market failure in the sector.

In 2004, Radio 4′s Moneybox programme joined the campaign, with Paul Lewis presenting a half our expose of extortionate lending. In spite of a growing clamour in parliament and the media, the Department for Trade and Industry remained resolutely opposed to caps.

In 2005, as a result of lobbying by Debt on our Doorstep and the National Consumer Council, the  Competition Commission launched an Inquiry into the Home Credit sector, which we submitted both written and verbal evidence to in person.  The Inquiry concluded that there was indeed market failure, at a cost to customers in excess of £500 million over the period 2000 to 2004.

In 2006, the Competition Commission concluded that it was ‘minded to consider a price cap on home credit loans’ if it appeared likely that its other remedies were not proving effective.

Sadly, the past ten years has seen a growth of even more pernicious forms of extortionate lending, not least amongst them payday lending, at rates of interest of up to 4,000%apr.  And sadly, in spite of mounting evidence of the damaging impact of extortionate lending on millions of low income households, successive Governments – under intensive lobbying from powerful business interests – have set themselves against capping interest rates – until yesterday.

Ten years on, victory is sweet indeed.

Credit for this victory rests with many who have supported and given the campaign fresh impetus along the way, not least Stella Creasy MP, who has championed the cause since being elected to Parliament in 2010.  But most of all to Damon Gibbons, Director of the Centre for Responsible Credit who co-founded Debt on our Doorstep 13 years ago. Damon has held alight the flame through thick and thin, refusing to bow to the pressures of industry lobbyists, naysayers in the voluntary sector and the depressing rebuttals of a succession of Government ministers.

ID: 48164
Publication date: 03/12/12

Created: 04/12/12. Last changed: 04/12/12.
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