A bid to cap interest rates for payday loans in Scotland by Lothians MSP Margo MacDonald (pictured) has had to be scrapped after she was told by government legal advisors that as a consumer issue payday loans north of the border still fell under the responsibility of Westminster.
It was back in April this year – during her election campaign – That Ms MacDonald stated if she were elected she would bring forward a Parliamentary Bill to stop “exploitation of the poorest people” in Scotland.
She said back then: “The market in so called payday loans grew by three-and-a-half times between 2006 and 2009, when it was estimated to be worth £1.2bn. Given the worsening state of family finances amongst poor people in particular, this figure has probably grown.”
“Following a debate in Westminster recently, the coalition promised to review this aspect of trading standards but, as the matter is urgent, the criminal law in Scotland offers a shorter route to stopping the exploitation of the poorest people in our communities.” Read the full interview from April here.
She now hopes to pursue the expansion of the use of credit unions in Scotland and is asking for cross party support.
She told the Edinburgh Evening News: “I want to try to prevent people getting into debt and try to expand the number of credit unions – which is really community banking, easily accessible – where you can save very small amounts but if you demonstrate you are a saver you can apply and get a loan. There is a certain urgency about this. People who have lost their jobs or are working fewer hours will have thinner pay packets. An awful lot of people are falling into debt. And people often get into debt in the run-up to Christmas.”
She has already written to Finance Secretary John Swinney, asking him for funds to get the program started.
Labour MP Stella Creasy is trying to introduce a similar bill in Westminster to curb payday loan interest rates but so far it has been met by a lot of opposition and Ms MacDonald said the feeling in Westminster is that it won’t get very far.
Ms MacDonald was hoping to get an MSP from each of the Scottish parties to back the idea of expanding credit unions so that people had an alternative to payday loans in Scotland.
One MSP who is on board with the idea is Lothians Neil Findlay from the Labour party. He has always been a supporter of credit unions saying:
“They encourage people to save and they give loans at reasonable rates. We want to get them into high street locations so they become ingrained in the culture like banks and building societies.” Read the full news article here.
Whilst any idea to help people out of a debt trap should be supported and wished well, latest figures show the majority of payday loans are given to middle income earners with a salary of between £25k and £50k and are used to avoid bank overdraft charges, late payment fees etc.
By capping payday loans and making them unattractive to the loan businesses that offer them you will simply be paving the way for a return to the bad old days of illegal loan sharking. Yes payday loan charges can seem extremely high but then so are bank overdraft charges but no one in Parliament (Scotland or England) seems to be going after the banks.