You are here: Home - Credit Cards & Loans -

Payday loans: City regulator to introduce interest rate cap

0
Written by:
25/11/2013
The payday loans industry will be forced to limit the cost of its loans amid claims it is trapping vulnerable borrowers in debt.

The Financial Conduct Authority (FCA) will now be required by the Government to cap interest rates on payday loans.

The cap will be included in the Banking Reform Bill, which is already going through Parliament, however the level of the cap is yet to be announced. 

The payday loans industry has been heavily criticised in recent months over the affordability of the loans, which can exceed 5,000% on an annual basis.

Critics claim the firms take advantage of vulnerable people and the way they are marketed mask the damaging effects of the high interest rates.

The Chancellor, George Osborne, told BBC’s Today Programme that the move would limit the “overall cost of credit” and not just interest rates.

Citizens Advice Chief Executive Gillian Guy said: “This is a cap on the exploitation of people struggling with the rising cost of living. Payday lenders have failed to stick to their own promises to treat customers fairly. The Government’s plan to cap the cost of loans only goes to show how out of control the industry is.

“The extortionate interest rates, hidden charges and lack of financial checks have pushed many payday loan customers into serious financial hardship. As our new figures out today show, three in four people who take out payday loans get into difficulties.

“Citizens Advice has always been clear that any cap on payday loans must be a cap on the total cost of credit. Limiting interest rates alone would allow lenders to pile on excessive costs elsewhere, so the Government is spot on in deciding to tackle the overall cost. Ministers also need to look at opening up the market so there is more choice for consumers.”

Michael Ossei, personal finance expert at uSwitch.com, says that although the cap is a step in the right direction, more needs to be done to make the payday loans industry more transparent and accountable.

He added: “The Government and FCA has to protect vulnerable consumers and must press ahead with tougher action on the marketing practices of these modern day highwaymen to stop the bombardment of adverts and messages promising borrowers a quick and easy cash fix.”

The payday industry has said that a move to cap rates could restrict credit and may encourage illegal lending.

The Competition Commission is currently investigating the payday loans industry and an Office for Fair Trading (OFT) report in September said there were “deep-rooted” problems in the way the loan companies operate.

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Seven ways to get help with energy bills this winter

We knew today’s announcement was going to be painful, but it’s still a shock to the system. When this kick...

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week