Government fails to tackle loan sharks

| November 22, 2011
Government fails to tackle loan sharks

The Government’s failure to act against legal loan sharks yesterday has angered pressure groups.

As part of its review on consumer credit, the Government announced a voluntary deal for High Street stores to stop offering discounts to tempt customers to sign up for store cards.

However, it failed to cap the interest rate charged on store cards, which can be as high as 30 per cent, as well as failing to take action against payday and doorstep lenders who charge exorbitant rates for loans.

Companies such as Toothfairy Finance, which charges 2,689 per cent interest on loans, are believed to be operating within the law, even though they trap customers in debt.

Other so-called ‘micro-loan’ companies include 247 Moneybox which charges 5,784.3 APR and Wonga which charges 4,214 per cent, and their customers often don’t understand the full implication of these charges when they sign up for the loan.

In its review of consumer credit the Government acknowledged an “upsurge of concern” and said it would publish research into the effect of a cap on payday loan interest rates next summer, by which time many more people could have fallen into debt.

According to the Debt Advice Foundation, 41 per cent of people trapped in debt have taken out payday loans, with half of them saying they were not fully informed of the consequences.

Although the government favours self-regulation, MPs and pressure groups are calling for the industry to be regulated and have raised doubts over whether payday and doorstep lenders are adhering to proper legal standards.

Concerns centre over whether firms that advertise loans which can be made in just minutes are allowing customers the legal 14 day cooling-off period, during which they can cancel the loan.

Earlier this month Stella Creasy, Labour MP for Walthamstow, warned that payday loan companies are targeting the Armed Forces and ex-servicemen.

Quickquid.co.uk had a special section on its website for members of the Armed Forces, but this has now been taken down.

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