ONE issue that comes up from time to time is that of the scourge of so-called “pay day lenders”.

We are all very familiar with their adverts – in particular the group of cosy cartoon pensioners looking for a bit of extra cash.

There is no doubt about it, pay day lenders do provide a useful service to many people who need to bridge a cash-flow gap over a very short period of time and in many cases their charges can be less than an unauthorised overdraft at a high street bank.

But pay day lenders have a very bad reputation: they charge extortionate annualised rates of interest and they allow people to fall, far too quickly, into a vicious debt cycle that can get people into deep trouble. Many people are calling for them to be banned.

I agree: they are pretty unsavoury and I deplore their usury rates of interest. But they do perform another social function. The reality is that pay day lenders form the hard frontier between the regulated, high street financial world and the unregulated, illegal world of loan sharks and thuggish money lenders.

By being in existence, and occupying some of the space that illegal moneylenders would occupy, they crowd out the illegal activities, allowing regulation to cover a far wider area. The answer is not to make pay day lenders illegal.

The answer has, in fact, come from an unlikely source. The Archbishop of Canterbury, who has as strong feelings about pay day lenders as I and a strong commercial and financial background, sees the solution to their usury rates not through regulating them out of existence, but through competing with them to push them further into the space occupied by the illegal loan sharks.

His solution is to use the assets of the Church of England to set up credit unions and small micro-finance operations to compete against the pay day lenders. They, in turn, will be competing against the loan sharks and so the regulation of financial services will get wider.

Of course, there is a great deal to be done helping families.

Household vulnerability is very high and with the risk of interest rates eventually going back to normal, household vulnerability risks getting worse.

So the Archbishop needs all the support he can get with his important intervention; banks need to do more to help those households who have no bank account; and both governments and central banks need to make sure that households are supported as the economy recovers.

CONTACT YOUR MP

  • Email: mark.garnier.mp@ parliament.uk
  • Telephone: 020 7219 7198 or 01562 746771
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