CFA dismisses levy on payday lenders

The Consumer Finance Association (CFA) has dismissed the idea of imposing a levy on payday lenders.

Left-wing think tank the Institute for Public Policy Research (IPPR) had suggested the one-off tax be implemented in an attempt to cream off £450 million from the £180 billion industry. The funds would then be used to set up an affordable alternative to short-term loan providers.

According to the IPPR, the levy could help support 1.5 million credit agreements of up to £250 at a time. Lenders would then be able to charge a maximum of three per cent in interest per month, or 42.6 per cent annually. It claimed the £450 million figure it devised is equivalent to the level of 'consumer harm' caused by the payday loans industry in 2011-12, as identified by the National Audit Office.

In addition, the institute stated creditors should be required to provide a clear 'pounds and pence' cost of any potential lending arrangement. This would take the form of a 'total cost of credit' per £100 borrowed.

The recommendations were said to be under consideration by the Labour party, which has already proposed a levy against payday loans companies. Shadow consumer affairs minister Stella Creasy stated the IPPR's report showed there was still a lot of work to be done to make sure credit unions are able to compete in the lucrative short-term finance industry.

However, the CFA rejected the study, calling it 'hardly effective or proportionate'. It claimed it was impossible to take the idea seriously, due to the fact it is based entirely on the assumption that a one-off levy will solve what it called a complex social issue.

Chief executive Russell Hamblin-Boone commented: "Had the IPPR done its research, it would have found the best-known lenders already do most of the things it is calling for, including explaining costs in pounds and pence, funding debt advisory services and working locally with the credit union network."

He added that if the institute was really concerned about solving the detriment caused by the consumer credit industry, it would do a lot more than concentrate on a sector which accounted for just two per cent of household debt.

By Joe White