The Government has announced that it will change the law to allow a cap to be imposed on the interest rates charged for so-called “payday loans”, which can be as high as 4,000 per cent.
Ministers will give the new Financial Compliance Authority (FCA) the power to act against rogue lenders by amending the Financial Services Bill when it goes for its third reading in the Lords next week.
The original amendment proposes that the “FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.”
Before the vote, more than 40,000 people who want a cap on the loans, signed a petition that was started by Judy and Arthur Breens, after their daughter, who has special educational needs, signed up for such a loan, which crippled her financially and caused her to leave home to escape the threatening letters and ‘phone calls.
The Government had originally been against a blanket cap on interest rates but changed direction after facing a possible defeat on the amendment, which was put down by Labour Peer Lord Mitchell and also endorsed by incoming Archbishop of Canterbury, Lord Welby, who called the costly loans “usury”.
While the Labour party is calling the Government’s change of tack a “major climbdown”, sources insist that it is not a U-turn and that the Financial Services Bill would already have given the FCA some powers to cap payday loans.
The Government has agreed instead to introduce its own amendment to the Bill in the Chancellor’s Autumn Statement to be delivered next Wednesday.
Mackrell Turner Garrett Solicitors in London
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