Labour pledges new powers over pay day loan shops

Under the existing law councils can only prevent a pay day loan business opening new premises if the application contravenes planning laws. Picture: TSPL

COUNCILS would be handed powers to prevent controversial pay day loan shops opening on Scotland’s High Streets, under plans to be included in Labour’s election manifesto.

Under the existing law councils can only prevent a pay day loan business opening new premises if the application contravenes planning laws on a technicality, such as over the size of the shop, its business sign or if it is out of keeping with the area.

However, Ed Miliband has pledged to devolve powers to Scotland that would allow councils to block a pay day loan firm from opening if an authority is concerned the company would charge customers high APR rates, that would lead to a growth in debt levels in an area.

Companies such as QuickQuid list a representative APR rate of 1,212 per cent (corr) on its website. The Money Shop, which has premises in Glasgow and Edinburgh, as well as most other cities and towns in Scotland, quotes a 1,308 (corr) APR representative.

Miliband’s finance spokeswoman told Scotland on Sunday that Labour would alter the law to allow councils to “roll back the explosion of predatory lenders on our high street”.

Hundreds of pay day loans firms are understood to be operate on Scotland’s High Streets, with 100,000 people (corr) thought to regularly take out such loans in Glasgow alone in a market with £57 million per year (corr).

Scottish ministers have been accused of failing to commit to use powers recommended in the Smith commission on further devolution to block the spread of pay day lenders.

Labour’s Shadow Finance Secretary, Cathy Jamieson, said the party’s UK manifesto would include a clear pledge to allow councils to block the opening of pay day loans shops if there are specific concerns high APR rates would be charged.

Powers to place a cap the interest rate charged by pay day loan firms are reserved to Westminster, although under the plans included in the Smith commission, Holyrood would be able to prevent such firms opening new premises in Scotland’s High Streets.

Scottish Labour leader Jim Murphy and his deputy Kezia Dugdale, are understood to have lobbied Miliband to include a specific pledge to restrict pay day loans firms opening new shops, in order to place pressure on the Scottish government over the issue.

Under the plan Holyrood would ultimately need to pass legislation to allow councils to block the opening of such companies, alongside Miliband’s plan to limit the growth of new pay day loans south of the border.

However, Murphy and Dugdale have said it would be a priority if Labour wins in 2016 in Scotland.

Labour’s Shadow Finance Secretary, Jamieson, said the party would “ alter planning laws to allow communities to regulate the prevalence of pay day lenders which have thrived under the Tories assault on living standards”.

Jamieson said Labour would also introduce a levy on payday loans companies to help fund “sustainable finance initiatives” such as supporting credit unions.

She said: “Far too many Scots can’t make their wages stretch to the end of the month, which is why Scottish Labour will take action on pay day lenders.

“Working families are being trapped in a spiral of debt by a Tory government who are obsessed with prosperity for the few, at the expense of the many.

“Scottish Labour will take on companies who exploit and profit form people in poverty, in stark contrast with the Tories who have watched this industry boom as a result of their low pay economy. We’ll give communities the power they need to fight back and stop payday loan shops opening on their high streets.

“Pay day lenders have thrived under this Tory government, and only Labour will end the assault on low pay and roll back the explosion of predatory lenders on our high street.”

Jamieson said that Scottish Labour would use the powers recommended by Smith over the regulation of pay day loans alongside plans to curb the use of fixed odds betting machines - another power due to come to Holyrood.

She said: “The SNP have abdicated their responsibility to the most vulnerable by abandoning their commitment to use the planning laws to tackle the growth in pay day lenders.

“Their u-turn puts families and communities at risk from loan companies that prey on struggling households.

“Only a Labour Government will extend the levy on the profits of payday lenders and use the additional money to support alternative credit providers such as credit unions.

“And we will use the powers under the Smith Agreement to tackle the spread of fixed odd betting machines. These machines can swallow up a week’s wages in minutes.”