Payday loans to be capped by government
The cost of payday loans will be capped by the government in new legislation aimed at stopping companies charging huge rates of interest.
The level of the cap is yet to be announced and will be set by new industry regulator the Financial Conduct Authority.
The cap will be included in the Banking Reform Bill, which is currently progressing through the House of Lords.
Speaking on the BBC, chancellor George Osborne said: ‘It will not just be an interest rate cap.
‘You’ve got to cap the overall cost of credit.’
The government says there is ‘growing evidence’ in support of the move and has pointed to the 4 per cent monthly interest rate limit set in Australia.
The FCA takes over as the industry regulator in April 2014, meaning changes are unlikely before 2015.
Mr Osborne said: ‘We’ve always believed in properly regulated free markets where there is competition but consumers are protected, that’s why I have created a new consumer regulator.’
The Consumer Finance Association, which regulates some payday lenders, warned the move could bring illegal lenders into the market.
‘Research from other countries where a cap has been introduced, suggests price controls would lead to a reduction in access to credit, and open up a larger market for illegal lenders,’ a spokesperson said.
