Interest to be capped on payday loans

| November 28, 2012
Interest to be capped on payday loans

The government has agreed to give the incoming Financial Conduct Authority the power to take action against unscrupulous lenders.

In the face of defeat on a proposed amendment to the Financial Services Bill it has also agreed to allow the interest rates charged for payday loans to be capped.

The cross-party amendment was backed by Lord Mitchell, the incoming Archbishop of Canterbury, Baroness Howe and Baroness Grey-Thompson.

Payday loan companies charge interest rates of up to 4,000 per cent and the industry is being investigated by the Office of Fair Trading over aggressive debt collection practices.

Rather than a blanket cap on interest rates it is expected that the Financial Conduct Authority will be given the power to investigate individual loan schemes and set a limit on the interest rate charged.

Speaking to the House of Lords, Treasury minister Lord Sassoon said:
“We need to ensure that the Financial Conduct Authority grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution.”

The Financial Ombudsman Service (FOS) is receiving 50 new complaints about payday loans a month, significantly more than last year.

It received 271 new payday loan complaints between April and September 2012, nearly as many as for the whole of the previous financial year when it received 296 complaints.

The complaints cover various issues including loans being unaffordable, charges being too high and lenders refusing to accept a suitable repayment plan.

Some customers have complained that their personal details were used fraudulently after taking out a payday loan.

A recent survey by consumer group Which? found that 48 per cent of people who took out a payday loan were unable to afford to pay back their debts.

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