Call to clamp down on debt products
Tougher action is needed to clamp down on "opaque and poorly regulated" commercial debt management companies and payday lenders, a report from MPs has urged.
The abuse of customers who are "over-indebted, vulnerable and desperate for help" has caused people to lose their home in some of the worst cases, the report from the Business, Innovation and Skills (BIS) Committee says.
It called for greater transparency from companies turned to by consumers to help them "make ends meet" after seeing their household budgets squeezed by high living costs and deteriorating employment conditions.
The Debt Management report urged the Government to limit the rolling over of payday loans and ensure lenders record all transactions on a database after taking evidence that some consumers have more than 20 such loans.
A fast-track procedure should be put in place to suspend lenders' credit licenses and the regulator should have more powers to ban products which are "harmful" to customers, the committee said.
The report also recommended that the standard annual percentage rate (APR) measurement should no longer be used to compare short-term payday loan costs, with typical APRs of 2,500% often meaning little to consumers.
Instead, the total cost of the loan including interest charged and fees should be made clear, including late payment penalties.
Committee chairman Adrian Bailey said: "During these difficult economic times, increasing numbers of people up and down the country - not least some of the most vulnerable members of our society - are relying on the provision of consumer debt management services and payday loans to make ends meet. And yet this industry remains opaque and poorly regulated."
He said the Government must take "swift and decisive action to prevent firms from abusing the needs of such a vulnerable customer base".
The Office of Fair Trading announced last month that it is carrying out spot checks on 50 major payday lenders amid concerns that people are being given loans without proper checks being carried out.