Labour plans payday lenders levy to fund low-cost credit
Labour has pledged to impose a levy on the profits of payday lenders to help support lower-cost lending from credit unions and boost money advice services.
If elected in 2015, it would introduce an extra charge on the lenders, which charge up to 4,000% interest, on top of fees already paid by all finance firms.
Shadow business minister Stella Creasy told the BBC it was "payback time for these payday lenders".
Payday lenders say they provide a valuable service to their customers.
But Ms Creasy, who became Labour's shadow consumer and competition minister in the recent reshuffle, said: "Some of these companies are making a million pounds a week.
"They need to pay their share for the damage they're doing."
She said the firms were "aggressively targeting people, and once they've got them in their claws, they keep squeezing and squeezing them".
Ms Creasy, the Labour MP for Walthamstow, added: "Many other industries have set up voluntary organisations, like Drink Aware and Gambling Aware, when their products are causing problems. Yet this industry sits around saying there's no damage being done.
"These companies need to take responsibility for the damage that they are causing in communities like mine, where I've got 18 of these companies on my high street alone.
"So we're proposing to put a levy on them that can be used to fund the expansion of credit unions, who need more capital to be able to lend, and also debt and money advice services to help people with their finances, because we are struggling with the cost of living in this country."
Ms Creasy's interview preceded a speech by Labour leader Ed Miliband, in which he said the measure was designed to help those already in "desperate need" and people at risk of racking up huge debts they cannot repay in future.
The industry has been referred to the Competition Commission and regulators have promised a tightening of the rules, with all borrowers set to be offered an "affordability" check before being given a loan.
'Personal credit crunch'
Mr Miliband claimed that the squeeze on living standards was causing a "personal debt crisis" with a third of those taking out payday loans currently doing so to meet the cost of heating their homes.
"The prices families have to pay keep on rising faster and faster than the wages they are paid," he said on a visit to south London. "For too many families the end of the month is now their own personal credit crunch."
Labour has already said it will cap the cost of credit and give local authorities new powers to limit the spread of payday lending shops in town centres.
But Mr Miliband added: "We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders.
"And it is right that the companies that benefit from people's financial plight, accept their responsibilities to help ensure affordable credit is available."
He said the party would consult on the rate of the levy and how it will be implemented.
Payday lenders, along with all financial service providers, already pay fees to the Financial Conduct Authority to help fund services such as debt advice.
The government currently spends £13m on supporting the growth of credit unions but Labour says these organisations do not have the capacity nor the resources to offer help to all those who need it.
Labour says the "explosion" in the payday lending market - which it says has doubled in size to £2.2bn in the last four years - is directly related to what it says is a "cost of living crisis".
As many as five million families plan to borrow money from payday lenders in the next six months, and more than 1.5 million households spend more than 30% of their income on unsecured credit repayments, it says.
Ministers say proposals announced by the Financial Conduct Authority earlier this month, including a ban on some products and a limit on the times loans can be rolled over, will "call time" on unscrupulous lenders.
The Church of England has condemned the practices and ethics of some payday lenders and pledged to launch its own credit service to force many of them out business.
But lenders say they are helping people in genuine need with no-one else to turn to and that firms who are members of Consumer Finance Association are heavily regulated already.