The levy, collected by the FCA on behalf of the Money Advice Service, is paid by financial services firms but excludes short-term high cost loans because they are currently regulated by the Office of Fair Trading.
Once placed under the FCA’s control from April, Blomfield wants these loans, which include doorstep and log book loans, catalogues and payday loans, to contribute an amount representative of the detrimental effect they have on borrowers’ finances.
Speaking in Westminster Hall yesterday he said: “The need for free debt advice is growing due in no small part to the unscrupulous practices of payday loan companies.”
Statistics from Step Change, the free debt advice service, revealed a seven-fold increase in the last five years of the number of people seeking debt advice as a result of taking out a payday loan.
Blomfield said the transferal of payday loans to the FCA’s remit will give the regulator an opportunity to ensure the payment made by payday lenders is “commensurate” to the problems they cause.
He added: “The way the FCA calculates the levy applicable to each firm should be rethought.”
A report by Step Change, proposed that rather than basing the levy on income and write-offs, which Blomfield said “perversely” encouraged firms to go after vulnerable borrowers more aggressively to repay debts, firms should be charged in a different way.
Step Change suggested a fairer method would be to use default rates, complaints made about lenders to the Financial Ombudsman Service and data on payment problems from debt advice agencies.
Blomfield said: “The levy is there to fund a service when things go wrong. If the business model of payday lenders means things go wrong more often; rather than profiting from this lenders need to pick up the pieces.”
And he wants the pot to increase as a result of more firms paying into it rather than it being “levelled down” to reduce the amount individual lenders have to pay.
The MP for Worcester, Robin Walker, supported the debate by adding that the fees paid by payday lenders should be ring fenced for the sole purpose of providing free debt advice and should not be used for other services.
But the Financial Secretary to the Treasury Sajid Javid said he had not been persuaded that a ring fencing system should be used.
A spokesman for the Financial Conduct Authority said: “We will be consulting on fees later on this year.”
