Great day for Debtbusters
Friday, February 8th, 2013 @ 1:10PM
Yesterday was a great day for Debtbusters – the campaign set up to take on Payday loans lenders profiteering from the financial misery of thousands of Scots.
For the second week in a row, the Parliament was debating the issue but this time the Scottish Government came armed with the some action – all of which originated from the Debtbusters campaign.
– Government backed “wealth warnings”
– Support for credit unions
…all either happening or given significant green light from Govt Ministers.
What follows is the speech I gave in closing the debate – in it i encourage the Scottish Government to keep rubbishing Debtbuster ideas and doing them anyway… 😉
(Click here to read the whole debate)
Kezia Dugdale (Lothian) (Lab): I first wrote to Fergus Ewing on 8 May about high-interest, short-term lending asking him to introduce, or at least consider, wealth warnings on payday loans. I said that we advertise health warnings all the time—do not eat fatty foods, do not drink too much and take regular exercise—and asked why, therefore, we could not do that with wealth warnings to warn against the dangers of payday loans and to promote alternatives. He wrote back to me on 29 May and said:
“It would not be appropriate for the Scottish Government to undertake an advertising campaign to advise the public of the issues in the high-interest short-term loan market.”
Not liking to be told no, I wrote again to the minister in June and received a reply on 1 August. In that letter, he again refused to consider my idea of wealth warnings on payday loans. This time, he said:
“With regard to using the Government’s advertising budget to provide ‘wealth warnings’, I must reiterate the comments I made in my letter to you dated 29 May 2012, that it is not appropriate for the Scottish Government to discourage people from obtaining credit which is offered to them in a legal, fair and transparent way.”
When I saw today’s Daily Record pull-out, I thought that it was fantastic. It is exactly the type of thing that we need. Then I looked at the front cover and saw the Scottish Government logo and the logo for the Accountant in Bankruptcy. The first thing that it says on the front cover is:
“Avoid the ‘pay day lenders’ with more sensible solutions”.
On the inside page, there is an introduction from the minister himself:
“Borrowing from so-called ‘pay day lenders’ may be an attractive option in some cases but the reality for many is that the high interest rates prevent repayment within the term of the loan.”
He then goes on to say:
“In this booklet, you will find information”
“Debt Arrangement Scheme and access to more affordable credit through Credit Unions.”
That is fantastic. It is exactly what I wanted him to do.
I ask Jamie Hepburn to have sympathy with the Opposition when we despair a little at the state of politics. I have spent months having the minister discredit my ideas only to see the Government adopt them in today’s Daily Record. It is difficult to see that and not lose faith in politics generally.
The question is what the Government will do today. It might find itself in the position of having to vote against Labour’s amendment. In doing so, it will vote against exactly the type of social advertising that it has done in today’s Daily Record. It will also vote against money for credit unions, which, in yesterday’s budget debate, John Swinney promised Margo MacDonald he would provide.
If the Government is going to do that, I ask the minister most sincerely to work with Labour on the issue. I ask him to get us around the table. Let us share our ideas on how to address the problem. We really are trying to do it in the best of faith.
The minister organised a round-table with various money advice groups on 17 January 2012 and promised them another one on payday loans. I waited months and months for that event to take place. When it came to September and it had not happened, I organised my own round-table on payday loans. I invited various money advice organisations from throughout Scotland, Government agencies, charities, the Scottish Trades Union Congress, the Church of Scotland, Govan Law Centre, the Co-operative Party and the Law Society of Scotland—everybody was there.
At that meeting, Mike Dailly of the Govan Law Centre presented what we called a fast-track debt arrangement scheme. That was a scheme that recognised that it can take two and a half or three months to get a debt payment programme set up. For people who have payday loan debt, that is very difficult, because obviously the interest is accruing all the time. The proposal was a fast-track debt arrangement scheme.
Imagine my surprise when the Government took that idea and produced what it has announced today: the introduction of a freeze much earlier in the debt arrangement scheme to remove the anomaly of interest still being charged in the two and a half or three months from the minute someone applies for a debt payment programme and the programme being set up. I congratulate the Government on doing that, but I ask it to recognise that we have been floating that idea for several months.
In a vain attempt to put another idea to the minister in the hope that he will rubbish it for a couple of months and then agree to it, I ask him to consider the fact that part of what the debt arrangement scheme is doing might in fact increase the amount of money that is paid to payday loan companies. I will try to explain that to the minister.
If someone takes out a £100 loan from a credit union and they are charged 26 per cent interest APR for three months, they will pay back £108. If they take out a £100 loan from Wonga for three months at an interest rate of 4,200 per cent, they will pay back £1,050—and that is before the levies, the fees and the administration charges are added. When someone enters a debt payment programme under the debt arrangement scheme, all the interest fees, all the debt and all the extra charges are lumped in with the capital sum that has been lent, which is what is sought back from the debt payment programme. Payday loan companies will profit from the debt arrangement scheme if we are not careful. I ask the minister to look at the possibility of separating out capital from interest charged. He could make sure that the scheme addresses the capital load, so that payday loan companies and credit unions get that back, but treats the interest in a slightly different manner. It is an idea, which I ask him to consider and return to at a later date.
I am also concerned that, at the moment, if someone has substantial debt, they end up on a debt register. It is possible for marketing companies to access that register, phone people up and ask them whether they would like help from a private company to file for bankruptcy. Those companies are profiting from people in extremely dire financial circumstances. Will the Government look at making it illegal to sell that data on to private companies for them to exploit? I believe that that is within the Government’s power. I hope that the minister will look at it in the context of bankruptcy legislation.
I hope that the minister can see that we are presenting these ideas in the most genuine manner. We simply cannot wait any longer to act on payday loan companies. I get the points from the SNP back benches about waiting for independence and the need to regulate. I have pointed to the work that Stella Creasy is doing at Westminster on regulation and have said that we cannot wait for a change of Government in 2015 and we cannot wait for independence in 2016. Think of the interest that will be charged in two or two and a half years if we do not act now for people who take out these small loans. We have to do more today. I have put some ideas to the minister about how we can do that. I ask him to please work with us on this issue. These are legal loan sharks who are exploiting vulnerable families across the country. The minister has the ability to crack down on legal loan sharking. I ask him to look to do so today.