Payday loan companies have been backed by a Warwickshire MP who claimed borrowers would be forced to turn to loan sharks if legal and regulated lenders were taken away.
Stratford-on-Avon Conservative MP Nadhim Zahawi came to the defence of payday loan firms such as Wonga which have been heavily criticised by Labour.
Labour leader Ed Miliband has vowed to “clean up the pay day lending industry” by imposing a legal limit on the cost of credit and banning adverts for loans during children’s television shows – following claims that lenders were deliberately encouraging children to pester parents to take out loans.
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Dudley Council blocked access to payday loan websites on its 271 library and community computers, with councillors claiming that payday loan firms “take full advantage” of borrowers by charging excessive interest rates.
But Mr Zahawi said people who could not obtain bank loans and needed credit could end up putting themselves in danger by going to loan sharks, who in some cases were willing to resort to violence to get the money back.
He said: “We have to deal with the world as we find it, not as we would like it to be.
"If desperate people do need credit at short notice, I would much prefer they got it from legitimate companies which can be monitored and regulated, than through illegal means.”
Without legitimate lenders to turn to, “a significant minority do end up going to loan sharks, who would do anything to get their money back,” he said.
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However, Mr Zahawi also called for reforms to regulations so that lenders were obliged to share information to identify people taking out loans from multiple companies.
“Such borrowing can quickly spiral out of control, trapping people in huge debt. As we know from macro-economic policy, we cannot borrow our way out of a debt crisis,” he said.
“In the longer term, we need to get more people into work and improve workplace productivity, so that higher wages can be paid for out of higher profits.
The Government’s reforms to schools and welfare will help us get there.”
Mr Zahawi, , was speaking in a debate led by Black Country MP Adrian Bailey (Lab West Bromwich West), chairman of the Commons Business, Innovation and Skills Committee, which conducted an inquiry into loan sharks.
Mr Bailey accused payday loan firms of attempting to “lure people into taking out loans” and failing to ensure they were providing loans that customers really needed.
Highlighting advertisements placed by lenders, he said: “I looked at another advert that had a beautifully seductive cheery pink pig. I could not help but marvel at how the piggy-bank, a symbol over the decades of thrift and financial responsibility, should be misused in such a way to promote what is perhaps some of the most irresponsible lending, but that is how these companies advertise on their websites.”
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But the committee was particularly concerned about television advertising, he said.
One teacher had written to him recounting her experience when she asked a class what they should do if there was something they wanted to buy but did not have the money for.
The teacher told him that only one child suggested saving – while many others named payday loan companies, and said they had seen adverts for loans on television.
Responding for the Government, Bromsgrove MP Sajid Javid, the Financial Secretary to the Treasury, said: “I recognise that the issue has caused concern not just in the chamber but across the country... the Government are taking decisive action to protect borrowers from the harm caused by payday lenders and that we are fundamentally reforming the regulatory system that governs them.”