No Ms Creasy! Being properly treated is what these borrowers really need

This proposal has been raised by a likeable and ambitious new London MP Stella Creasy, who has an eye for a good subject, as well as (no doubt entirely coincidentally) a knack for getting herself into the newspapers on the back of it.

One of the new generation of politicians, the Labour/Co-op MP for Walthamstow has been making full use of the new tools of lobbying, such as tweeting, mass emails, ready-made letters and petitions. She's been running a brilliant, quick-fire campaign that can garner hundreds of supporting letters in a matter of a few days. There's no getting away from it: this MP certainly knows how to generate heat.

But what about light? There's little doubt there are people, usually on modest or low incomes, who have got themselves into terrible trouble borrowing from illegal money lenders - who break your bones and do other unspeakable things if you don't repay - or from legal short-term lenders who, Creasy says, charge far too much and push people into arrears, making it impossible for them ever to get out of debt.

So will her move have any effect? Not a chance. She's an Opposition MP trying to amend the Finance Bill, the piece of legislation that implements the last Budget - and Chancellor George Osborne is as likely to let Labour carve up his Budget as the last Labour chancellor was to have allowed a Tory to interfere with his.

In that sense, Creasy's campaign is a non-starter. But that doesn't mean she hasn't raised an important concern. What Stella would like to see, as she has said repeatedly, is some sort of cap on how much short-term lenders can charge their customers. That's what today's debate is really about. But is she right? Until recently, I would have given a resounding "yes". What could be better than to help those in need to borrow much-needed cash from these lenders at easier terms than they do now - particularly since High Street banks have virtually stopped lending and whack customers with punishing charges if they go overdrawn? The lender won't make as much but they'll still carry on lending - won't they?

That, at least, is the theory. The reality is no, they won't.

It's striking just how cautious some of the legal lenders are. Recently, I met Errol Damelin, boss of Wonga, one of the newer, internet-based lenders. Damelin emphasised the computer checks they make with credit reference agencies - and how, as result, they turn down many applicants.

Some lenders of course are less thorough but even they will only make loans to people they think will pay them back. Making it more difficult for these operators means they will cut-back and lend less or they might try to prop up their profits by lending to more people and making fewer checks. Neither outcome is attractive.

There's tons of research on the subject of short-term lending - much of it contradictory. But two things are clear: recklessly allowing the needy to borrow is bad; yet people do need some credit - and making it less available is seldom not good.

That's true for the economy, where the banks lent madly and now the Government is trying to get them to lend more. For the housing market, where the boom has been followed by fears the mortgage market is drying up. And for short-term consumer loans.

There has to be a sensible balance. Creasy's suggestion of imposing limits on lending is not so clever as it first appears. The Office of Fair Trading thinks so too - concluding that capping rates is no panacea.

Tellingly perhaps, neither has Creasy had wholehearted backing from consumer groups who fear that by cracking down too hard, she will cause legal lending to be restricted - driving would-be borrowers into the arms of illegal lenders and their strong-arm methods.

That is why the last Labour government did not bring in statutory controls. Creasy is behaving as though she has stumbled across a new type of business - when in fact short-term lending at high interest is as old as the hills and has been left alone by successive governments because, tough as this is to accept, the industry answers a public need.

That's certainly true of the poorest in our society. Middle-class borrowers, using the internet to borrow short-term to make a specific purchase or just for a bet on the Grand National (legal short-term lenders see a spike in their business ahead of the big race), will probably always be able to get cash from somewhere. They're not the problem. It's those on the lowest incomes (or no income) who have fewer choices of where to go, other than to short-term lenders. In essence, their only avenue is the illegal shark.

I am sceptical about whether those who focus on the issue are in fact interested in the criminal fraternity. The truth is that, even though this particular subsection is one that heaps the most misery on clients, MPs cannot make much difference because, by definition, they're already behaving illegally anyway. Amending the law is not going to affect the criminals one iota (although stepping up the enforcement rules would be a start).

That's why crooked lenders are often confused with legal ones - for campaigners the latter are more of a target than the former, genuine bully boys.

But the legal lenders are not whiter than white: they often target someone for a further advance when the borrower is having trouble paying off existing debts; they can fail to make hidden charges clear; they pile on more charges if you fall into arrears, then send in the bailiffs to recover the money, which is a horrible enough experience even without the use of violence.

What I suggest is: don't push the legals out of the market or encourage them to lend recklessly; force them to be upfront about how much they're charging (the current advertising of APR is incomprehensible and means little to anybody); prevent them from offering extensions to loans; stop them employing debt collectors to chase those who fall behind; limit the extra interest they can charge when a borrower gets into arrears; get them to sit down with a borrower and work through, with a reputable third party such as Citizens Advice, a sensible repayment plan.

Those are all measures that could make a real difference and which MPs from all parties should be pressing the Government to get the loan industry to commit itself to.

A few lenders do these things already but many don't - and they should all be required to do so if they wish to be legally recognised.

Making it harder for people to borrow is counterproductive.

Ensuring they're treated properly is the better solution.