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By Baroness Scott of Needham Market - 17th June 2010
Baroness Scott of Needham Market writes for ePolitix.com ahead of her oral question on the regulation of loan companies charging high rates of interest.
It's a rare evening when I have time to watch television, never mind the luxury of channel-hopping to see if anything catches my eye. But that's what's happened a few weeks ago, and led to my seeing a nice cheery advert for a company offering small, short-term loans.
Making a pitch that borrowing £70 for five days would 'only' cost around £9 caused my husband, a mathematician by training, to pipe up, "That's over 2,000 per cent" - and sure enough, the small print at the end of the advert tells you that the APR is in fact 2,689%, plus of course the £5.50 fee, and a charge of £15.50 if you are unable to make the repayment.
This is all tricky stuff. Proponents would argue that it's better to have an option which is regulated and upfront rather than driving people towards loan sharks. Libertarians would argue that people have to be free to make their own choices about how they manage their affairs.
Personally, I have some deep concerns about all this. At these interest rates, it's easy to see how a small, short-term loan could spiral out of control into something much more unmanageable, at an alarmingly fast rate. The company's website talks about how it will lend you a small amount to start with, and "as trust builds up", they will lend you more. This innocuous-sounding policy could lead people deeper and deeper into debt, as more of their monthly salary goes into servicing the loan.
The political zeitgeist is all about borrowing and the country living within its means. We mustn't forget that there's a personal dimension too.
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