Balls said that regulation and consumer protection around payday loans and lending could only go so far in helping the public avoid making the wrong loan choice while education would create a grown-up society of sensible decision makers.
He said: “Savings are a good thing but having loans is part of life, like having a mortgage or a loan for a car. Most people don’t get into distress because they have borrowed too much, it is because they borrowed what seemed like a proper amount at a time when they had stability in their lives but the loss of a job, an illness to a family member or the break-up of a relationship suddenly transforms the situation. Panic sets in and they borrow more to get out of the situation which makes it worse.”
The Shadow Chancellor said that people need to understand they must plan for adverse circumstances which they had not initially anticipated as well as understanding the products they are buying and the inflexibilities of some loans in certain circumstances.
Balls warned that too much regulation may exacerbate the problem by forcing troubled consumers down even higher risk routes.
He said: “I’m all for the tougher regulation of payday loan companies but I also know that there can be huge dangers in driving people into illegal loans and lending from loan sharks so we have to be careful of the unintended consequences.
Payday loans are currently regulated by the Office of Fair Trading but the regulatory responsibility will pass to the Financial Conduct Authority from 1 April 2014.
