Payday lenders would be forced to pay a levy on their profits under a Labour government, Labour leader Ed Miliband announced today.
Mr Miliband said the money raised from the levy would be used to double the funds available for low-cost alternatives, such as credit unions and money advice services.
Which? research on credit has found that eight in ten of us – around 38.5 million adults – use some form of credit.
Four in ten people who take out payday loans use them to pay for essentials like food and fuel.
Payday loan alternatives
Which? executive director, Richard Lloyd, said: ‘We urgently need to see more alternatives to payday loans that give people affordable access to credit without the irresponsible practices endemic in the payday sector.
‘We also want to see a cap on excessive default charges and the Financial Conduct Authority (FCA) to clamp down on irresponsible lending across the market to make sure borrowers are being treated fairly whatever form of credit they use.’
Your story can help Which? make the financial regulator take action. Join our Clean up Credit campaign to share your experiences.
Clean up Credit
Which? has set out five ways the FCA should act to clean up the credit market, and send a clear message to irresponsible lenders:
- Ban excessive default fees and charges
- Crack down on irresponsible lending
- Put people in control of their credit
- Clear and transparent information on the cost of credit
- Swift and early intervention for people in financial difficulty
Our latest consumer tracker, which monitors how consumers are coping with their finances, shows that 4% – around 1 million households – take out payday loans each month.
See our advice on complaining about your payday loan company.
Current government funding for the expansion of credit unions is around £13 million per year.
Credit unions offer community-based savings and loans, often at better value rates than banks, building societies and doorstep lenders. See our guide to credit unions.