A new network of community banks is needed to beat “payday loan” companies which charge massive interest rates, according to a North East MP.
Guy Opperman said the UK needed smaller, local banks to offer a personal service to customers and end domination by the national banking giants.
The Hexham MP also backed calls for restrictions on the activities of payday loan companies by limiting the amount they can spend on advertising - and running public information campaigns warning potential customers that payday loan companies offer poor value.
Mr Opperman is one of a number of MPs to express concern about the impact of companies offering short-term loans at high interest rates.
They include Wonga, which is advertising loans at a representative annual percentage rate of 5,853%. By contrast, credit cards tend to have a representative annual interest rate of below 20% while the equivalent figure for a bank loan might currently be as low as 6.5%.
Payday loans are often taken out by people who would not be able to obtain credit from other sources. They are also containable quickly and easily online, and for relatively small amounts of money over a short period, making them attractive to some borrowers.
Earlier this year the Archbishop of Canterbury, Justin Welby, said the Church could help put payday lenders out of business by building up Britain’s network of credit unions.
These are small, non-profit organisations which offer loans and are sometimes set up by trade unions or similar organisations.
Speaking in the House of Commons, Conservative Mr Opperman backed credit unions but called for the creation of full-blown local banks.
He said: “The Archbishop of Canterbury was right when, in July, he championed the cause of credit unions and criticised the payday loan companies. He was right to say that we needed to ‘compete’ the payday lenders out of the market.”
Britain had been “dominated by the big six or seven bank” for far too long, he said.
“I suggest that the mechanism by which people ought ultimately to borrow on a long-term basis is local community banks. They have all the flexibility, the clout and the borrowing power of a bank, as well as all the sympathetic community approach of a credit union, and the amalgamation of all those qualities will produce the best way forward.”
Mr Opperman said he had hosted a conference in Gateshead earlier this year attended by 170 delegates who were interested in setting up community lenders.
“They wanted to enable such lending by local, trusted providers, rather than by nameless, faceless, computer-led organisations based in London, Frankfurt or wherever.”
Making sure that people were able to borrow money at a fair rate if needed would become more important now that cold weather was approaching and heating bills were set to increase, he said.
Business Minister Jo Swinson said: “Today’s debate has also been very helpful in making it clear exactly how strongly the House feels about this issue.”