Business

Payday lending summit is called by ministers

Cash
Image caption Some payday borrowers have found that debts can spiral out of control

Lenders, regulators and government ministers are being summoned to a summit about the UK's payday loans industry next week.

The meeting aims to come up with solutions to the "widespread irresponsible lending" highlighted by a regulator's recent report into lenders.

It will be the first time that representatives of all of these groups have met together in one room.

A key decision on competition in the sector will be announced beforehand.

The Office of Fair Trading (OFT) is expected to finalise its view this week on whether the payday lending industry should be referred to the Competition Commission.

In March, the OFT said it had found "deep-rooted" problems in how payday loan companies competed.

It was minded to refer the industry to the competition authorities because firms were competing on the speed of providing a loan, rather than the cost.

'Wrong choice'

About two million people in the UK use payday loans, according to a recent report by the Commons Public Accounts Committee.

Typically someone will borrow a few hundred pounds from a payday loan firm for a short time, to tide them over until they receive their next wage or salary cheque.

But in a number of cases, struggling borrowers have been allowed to roll over loans, only to find the interest compounds and the debt spirals out of control.

Although the sector is regulated, lenders and the regulator itself have been criticised for failing to protect vulnerable borrowers.

Now, a wide range of groups have been invited to the Department for Business to discuss the problems in the industry.

It will be hosted by Consumer Minister Jo Swinson.

"Far too many times consumers have been lured into taking out products that are not right for them, that are not the right financial product," she told the BBC News website.

In these cases the money was not for an emergency, but was given to people who could not afford to pay it back.

She said that the summit would discuss whether the powers of the new regulator - the Financial Conduct Authority - are sufficient. The FCA takes over from the OFT in regulating the industry next year.

"We must make sure the FCA rules are robust and strong and what is needed to stamp out the rogue and irresponsible behaviour of some parts of the industry," Ms Swinson said.

'Open dialogue'

She will be joined at the summit by Sajid Javid, a Treasury minister, as well as representatives from the regulators and the Department for Work and Pensions (DWP).

Members of the industry, including the biggest lenders, as well as consumer groups, have also been invited.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, a payday lenders' trade body which will be attending, said the it welcomed "open conversation and dialogue" between the industry, consumer groups and the government.

It is hoped that clearer details of improvements among lenders, as well as information on what the lenders want from government, will emerge from the summit.

The StepChange debt charity has said that it has identified five cities where average payday loan debts rose by up to £563 between 2011 and 2012. They were: London, Cardiff, Liverpool, Leicester and Birmingham.

"These figures offer a frightening insight into how certain communities appear particularly vulnerable to increasingly high levels of high-cost borrowing which could result in serious financial hardship," said Delroy Cornialdi, of StepChange.

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