After earlier indications that the UK’s payday lenders would need to bear the entire burden of a new levy to fund the fight against illegal lending, the Government has now announced that the new levy will be paid by all 50,000 consumer credit firms in the UK.
The levy will commence in the 2017/18 financial year, although it is unclear what level it will be charged at, or whether firms that have credit authorisation but primarily conduct other activities will need to pay it.
The Illegal Money Lending Teams in England and Wales have helped borrowers throughout the UK recover funds from loan sharks since it was launched in 2004. They have helped 24,000 loan shark victims to get £63 million of illegal debts written off, and some 300 illegal lenders have been prosecuted so far. However their funding has been slashed by the Government, which is now turning to the credit industry to plug the funding shortfall.
In December 2015, it seemed that the burden of funding the Illegal Money Lending Teams would fall entirely on the payday loan sector. A backbench MP raised the issue of cuts to the team’s funding at Prime Minister’s Questions, and Chancellor of the Exchequer George Osborne MP, who was standing in for the Prime Minister on the day in question, mentioned a payday levy as a possible solution in reply.
On the announcement of a levy across the credit industry in February 2016, Mr Osborne said:
“I am absolutely determined to protect customers from abuse and sharp practice in the consumer credit market.
“That is why I capped the total cost of a payday loan, it’s why we’re taking further action today to tackle illegal loan sharks by ensuring that enforcement teams have the funding, from the industry, they need to protect consumers from those that would do them harm.”
“Illegal money lenders prey on some of the most vulnerable people in society, causing their victims immense misery,” said Economic Secretary to the Treasury Harriett Baldwin MP
“That is why we act now to ensure that illegal money lending teams have the funding they need to continue to protect consumers and prosecute loan sharks.”
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), a trade association that represents a number of payday lenders, appeared to welcome the move.
“The CFA and our members have long been supporters of the Illegal Money Lending Team,” said Mr Hamblin-Boone.
“All firms operating in the financial services sector have a responsibility to protect consumers and ensure that the Illegal Money Lending Team is funded long into the future. A levy administered by the Financial Conduct Authority funded from across the financial sector is the correct way to go.”
Mr Hamblin-Boone had earlier commented on the unfairness of forcing payday lenders to bear the entire burden of funding the fight against illegal lending.
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