The Westminster government is to introduce legislation to cap the cost of payday loans. In a move that’s likely to be welcomed by campaigners, the Treasury says there is “growing evidence” in support of the move.
The cap will be included in the Banking Reform Bill, which is currently going through Parliament, and the level of the cap will be decided by the new regulator the Financial Conduct Authority (FCA).
Chancellor George Osborne told the BBC there will be controls on charges – things like arrangement and penalty fees – as well as on interest rates. “It will not just be an interest rate cap, you’ve got to cap the overall cost of credit,” he said.
Although the level of the cap is yet to be determined, the announcement will be welcomed by opposition and campaign groups who have been urging the government to take action against some pay-day lenders’ practices: eye-watering interest rates and hidden charges which hit the poorest hardest and drive desperate people deeper into debt.
Just last week, Citizens Advice Scotland claimed that many payday lenders in Scotland are breaking the promises they made last year to clean up their act. According to CAS research, lenders continued to break ‘most of the pledges in their own code.’
The main points were:
- less than half of payday lenders in Scotland are telling people that loans should not be used for long-term financial problems;
- only 1 in 3 are checking peoples’ financial background before giving them a loan;
- only 14% of customers felt the lender was sympathetic when they got into difficulties repaying the loan; and
- only a third of lenders are warning their customers about the dangers of roll-over loans.
CAS Chief Executive Margaret Lynch said: “When the payday lenders published this voluntary code last year we made clear we would be watching them like a hawk to make sure they kept to their word. Because there’s no point making promises if you don’t live up to them.
“Our survey results – together with the experience of other clients we see every day in the CAB – show very clearly that this Code of Conduct Is being ignored repeatedly.
“Across Scotland, CAB advisers are currently seeing over 100 cases every week of people who are in crisis debt to a payday lender. That’s a third higher than this time last year. Our evidence is that many lenders are operating in ways that result in people getting into debts they can’t handle.
“So the Payday Lenders have had their chance to clean up the industry, and they have failed. It’s time now for the regulators to step in and do it properly.”
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