Labour leader Ed Miliband has declared that it is “time for payback” for payday lenders, saying that the loan companies will be hit by higher taxes if he wins the next general election.
He said that Labour would raise around £20m a year from lenders such as Wonga, either from a 1% levy on their balance sheet or a 10% tax on their profits, and give the proceeds to their credit union rivals.
In London on Thursday, which also happened to be International Credit Union Day, Miliband met with people who had fallen into debt after borrowing money from payday lenders.
“It is time for payback,” said Miliband, who also visited a credit union in Peckham.
“We will force payday lenders to pay back into communities, so we can expand low-cost lenders that actually help families.”
The government currently provides around £13m a year to support credit unions, a figure which Miliband says he would at least double.
Credit unions are financial co-operative that are owned by their members. They exist primarily to provide savings and loans to these members, however increasing numbers of credit unions now offer a wider range of services including Credit Union Current Accounts and mortgages.
A recent study found that consumers prefer lending from credit unions than payday loan companies.
The research, which was funded by Friends Provident Foundation and the Barclays Community Finance Fund, found that borrowers could take out a longer payment term whilst paying back less than they would from a payday lender. Borrowing from a credit union instead could have saved 1,219 people £145,000 in interest charges alone – equating to almost £119 per consumer.
Commenting on Labour’s plans, Social Economy Alliance spokesperson Dan Gregory said, “Exploring smarter use of tax and regulation of payday lenders is an encouraging step toward creating fairer markets that put people first.
“But the extra £26m in support of credit unions is a drop in the ocean – this is what a customer would owe in just three years if they borrowed £135 from a leading payday lender.”
Miliband’s announcement coincided with Paul Blomfield, Labour MP for Sheffield, launching the Charter to Stop the Payday Loan Rip-Off in parliament on Change.org.
“Payday lenders are ripping off millions of people, trapping them in spirals of debt”, Blomfield wrote on the campaign website.
“We need proper regulation and enforcement to make this stop.”