Ed Miliband declared that it was “payback time” for payday lenders today as he announced plans for a new tax on firms such as Wonga.
Labour’s leader was meeting Londoners who had fallen into a spiral of debt after borrowing money from the new breed of instant money firms.
Among them was Natalie, a student at the University of East London who borrowed £400 to supplement her student loan and ended up having to repay more than £1,000.
“It is time for payback,” said Mr Miliband. “We will force payday lenders to pay back into communities, so we can expand low-cost lenders that actually help families.”
He was visiting a credit union in Peckham that is offering instant loans at lower rates in an attempt to steer people away from high-rate lenders — a model that Labour wants to encourage.
Mr Miliband said that payday lenders would have to pay millions in a new tax to raise funds for similar low-cost alternatives.
Taxpayers give £13 million a year to fund the expansion of credit unions, a figure Labour promised to at least double.
Nearly one in four Londoners thought they were likely to turn to a payday lender to make ends meet, according to research last year. More than 1.5 million households are now believed to be spending more than 30 per cent of their income on unsecured credit repayments.
Walthamstow MP Stella Creasy, appointed to head a task force on loan sharks, said people were lured into debt by promises of easy loans. “The level of payday lending in London is huge, which is why these firms are advertising all over the buses,” she said. “This is not people borrowing for luxuries, but because of the high cost of living.”
Payday lenders offer short-term loans but have charged interest rates equivalent to 5,000 per cent a year.
Labour says it would cap interest rates and curb the spread of loan shops.
The payday lending market has more than doubled in size since 2008/09 to £2.2 billion, and up to five million families are planning to borrow from them, according to Labour.
