Letter from Norman Lamb, Minister for Employment
Relations, Consumer and Postal Affairs, dated 7th March 2012
I am writing to thank the Committee for your report
following its recent investigation into debt management. The report
is timely as Government have been looking very closely at a number
of issues surrounding consumer debt, including how consumers deal
with their debt, where they get debt advice and high cost credit,
including payday lending.
The report contains a number of important recommendations
for Government and I will be responding to them all in due course.
However, I wanted to write to you at the earliest opportunity
regarding the Committee's recommendation on our research on capping
the total cost of credit in the high cost credit market and to
explain why this research is crucial to Government better understanding
a difficult policy area.
In your report the Committee recommends that there
is no need for Government to commission research from the University
of Bristol, with all the associated costs, given the amount of
evidence and research available on the Canadian and US markets.
The Committee states that a report by the Centre for Responsible
Credit highlights the situation in Ontario, Canada where a total
cost of credit is in operation and that the Ontarian Government
carried out a large amount of research before putting this into
place. The report goes on to state that if Government continues
to believe that new research is necessary, it will need to set
out which specific areas lack existing data.
I am pleased to say that the research is well under
way and is on course to report back to Government in the summer.
The research will be a comprehensive study aimed at identifying
the impact not just on consumers but on business of introducing
a cap on the total cost of credit that can be charged. What makes
our research different and what makes it so important for future
policy decisions is that the researchers are not concentrating
on one sector of the high cost credit market but are establishing
the impact of introducing a total cost of credit cap that can
vary between different parts of the high cost credit market.
The report by the Centre for Responsible Credit concentrates
only on payday lending. The Government believes that this is too
narrow a focus. The high cost credit market is highly complicated
with a number of different sectors. The research commissioned
by BIS will not just be looking at the impact of introducing total
cost of credit cap in the payday lending market but also in the
home collected credit and pawnbroking sectors, both of which have
previously attracted similar headlines to those we are now seeing
regarding payday lending.
Caps on the total cost of credit that vary between
different sectors are not to our knowledge in operation in any
other market and are certainly not covered by either the Canadian
or the US research which concentrates on payday lending.
In addition the paper by the Centre for Responsible
Credit states that it has called on payday lenders to provide
independent academic researchers with access to their customer
base to establish how payday lending is being used in the UK.
The Centre goes on to criticise payday lenders for not co-operating
and states that there is a lack of information available on the
UK payday lending market. Before commissioning this research BIS
worked hard to engage with lenders and their representatives in
the payday, home credit and pawnbroking sectors to ensure that
the successful bidder for this research would have access to their
customer base. Lenders in these markets have been very co-operative
and we are confident that the research will enable one of the
most comprehensive pictures ever built up in the UK of who is
using high cost credit, why they are using it and what other options
they have when trying to access credit.
The Canadian research dates from 2008 and was published
in 2009. It is clear to everyone that the UK payday lending market
has grown and evolved over the last three years. The UK market
has a number of large companies who only offer payday loans online,
unlike the findings of the Canadian research which found that
the vast majority of payday lending in their market was done via
high street stores.
The Select Committee is right that there is a considerable
body of research on the high cost credit market. However, much
of this research is contradictory and some of it has been criticised
by organisations like the Centre for Responsible Credit. Bristol
University started their research by carrying out a comprehensive
literature review of previous research in this area, something
that will be extremely valuable to informing policy decisions
Finally, the Government is committed to evidence
based policy making and at a time of difficult decisions on public
spending would not commit funds for this research unless we thought
it was absolutely necessary. Previous research has identified
the difference between the UK and other credit markets and the
different impacts that introducing credit controls could have
in the UK compared with other markets. There is a real risk that
intervening in the market and introducing credit controls could
reduce access to licensed credit for some consumers, leaving them
with no other options other than unlicensed illegal lenders. The
Government believes that this is a vital piece of research that
will enable future decisions on policy in this area to be taken
with the confidence that we are fully aware of the potential impact.
Norman Lamb MP