End legal loan sharking now

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From the letters page of the Guardian this morning:

We write with growing concern that the UK has one of the highest levels of personal debt in the world – in April this year the British people owed over £1,460bn in private debt. Debt has become part and parcel of everyday life – many of us owe money on a credit card, loan or overdraft. Borrowing money can be beneficial, as is the case with student loans, business loans and mortgages. However, there is a tipping point at which borrowing becomes detrimental. Irresponsible lending can cause debts to become unmanageable: yet some loan and credit companies are charging annual interest rates equivalent to over 2,500% (despite the Bank of England base rate being just 0.5%). Borrowing at these rates repeatedly tips customers into inescapable cycles of debt and poverty. High debt repayments are linked to rent, council tax and utility arrears, constraints on jobseeking behaviour, poor diets, cold homes, and mental and physical health problems. This is legal loan sharking, a national scandal which must be stopped. In response to our growing private debt crisis we believe now is the right moment to adopt the policy of lending rate caps for all consumer credit.

Affordable short-term credit is needed more than ever to help make ends meet as people face reduced working hours, stagnant wages, and unemployment. Despite this, because millions are not catered for by many high-street banks, they have no choice but to borrow at usury rates. As a result, those most in need often pay the highest rates to obtain credit. Around 3 million people use high-cost door-to-door loans which often charge £83 in interest and collection charges for every £100 borrowed.

Irresponsible high-cost lending played a key role in causing the worst economic crisis for over 60 years. Financial institutions are now using the economic crisis as a means to again make profit from the most vulnerable in our society.

The government has committed to regulate excessive interest rates on credit and store cards, and yet is paradoxically allowing the much more pernicious practice of legal loan sharking to continue. The only way to stamp out legal loan sharking is by establishing a lending rate cap to cover all forms of consumer credit in order to reduce prices in areas of the market that are not price-competitive. Importantly, a cap needs to be accompanied by increasing access to more affordable, responsible sources of credit. The government should therefore further develop the idea of a "people's bank" using the post office network, and ensure greater support for local credit unions, community development financial institutions, co-operatives and mutuals. Furthermore, all banks should be obliged to provide a universal banking service.

The policy of lending rate caps coupled with increasing access to affordable credit would enable the poorest households to become financially independent, helping to provide a route out of personal debt, encourage saving practices and generate demand for local businesses in our deprived communities. It would also reduce the demand for social and welfare services and therefore relieve pressure on public spending. The government should therefore take urgent action to put an end to high-cost predatory legal loan sharking for good and introduce lending caps to cover all forms of consumer credit. Many countries across the world have shown that such a cap is viable – we need to follow their lead.

Jon Cruddas MP, Neil Jameson Citizens UK, Gavin Hayes Compass,Lisa Nandy MP, Chuka Umunna MP, Caroline Lucas MP, John Hilary War on Want, Martin Horwood MP, Damon Gibbons Debt on our Doorstep, Benjamin Fry, Oliver James Clinical psychologist,David Rodger Debt Advice Foundation, Rev Paul Nicolson Zacchaeus 2000 Trust, Prof Stefano Harney, Prof Richard Wilkinson, Prof Ruth Lister and 87 others at www.endlegalloansharks.org.uk

I was one of the other 87.