Scottish Parliamentary independent candidate Margo MacDonald has spoken out against the extortionate rates of interest charged by companies who provide so called pay-day loans and pleged to introduce a Bill to the Scottish Parliament to cap the interest if elected next week. These short term loans intended to be repaid on your next payday have grown considerably over the few years, probably down to the worsening economic situation during these periods. One company providing these services charges customers an APR of 1734% and I have seen television adverts advertising (in very small print APR rates of more than 2000%).
Personally, I have a problem with loans of this nature and have criticised them elsewhere before. However, I do not propose to discuss my opposition to such loans on this blog, but rather look at how likely it is that Margo MacDonald would be able to do anything from within the Scottish Parliament.
Margo MacDonald’s proposals are to use the criminal law to place a statutory limit on the rates of interest that could be charged on such loans making the charging of an APR higher than this limit a criminal offence. The Scottish Parliament more or less has complete competence in matters of criminal law. However, any move by the Scottish Parliament to pass legislation creating such a criminal offence is likely to be opposed by the Financial Service industry and a challenge could be mounted to the legislation before the UK Supreme Court.
The Financial Markets is an area specifically reserved to Westminster in terms of Schedule 5 of the Scotland Act 1998. It could be argued that by placing a cap on the interest rates that companies can charge for these payday loans that the Scottish Parliament is attempting to regulate the Financial Markets. Such an argument, in my view, would be very persuasive indeed. Both Financial Services and the Markets are reserved under A3 and A4 of Schedule 5 of the 1998 Act with the only real exception being the setting of bank holidays. It could clearly be taken from the framing of the Act that all matters relating to the regulation of legally registered financial services providers is something that Westminster has the sole responsibility for. In reality to have a situation that differs would make almost no sense at all. When taking this into account it is very probable that any legislation passed by the Scottish Parliament limiting the interest charged in relation to such services would be held as being ultra vires by the UK Supreme Court.
As much as I would like to see something done about these really quite disgustingly high rates of interest I fear that only Westminster can do something to tackle them. These loans are aimed at those who can least afford an APR rate of 1734%. The Coalition Government have promised to look at the matter and Margo MacDonald would be best to spend time pressing the Prime Minister and Deputy Prime Minister to take action rather than preparing a Bill for the Scottish Parliament that is likely t fail or be struck out due to being out with the Parliament’s competence.