Crippling payday loan rates will be capped after Government vowed to crackdown on lenders
Lenders currently face no restrictions on chargesTreasury ministers backed crackdown to cap ratesCustomers pay annual interest of more than 4,000pc
00:01 GMT, 29 November 2012
Extortionate interest rates charged by payday loan sharks will be capped after the Government agreed to change the law.
Treasury ministers backed a crackdown on the lenders who currently face no restrictions on what they charge, with some customers paying annual interest of more than 4,000 per cent.
Labour peer Lord Mitchell had proposed a cap on rates in an amendment to the Financial Services Bill making its way through the House of Lords.
The Government has agreed to change the law which will mean a cap on the extortionate interest rates charged by payday loan sharks
He told peers: ‘This is an industry run by cowboys on the fringes of legality.’
It was backed by the incoming Archbishop of Canterbury, Justin Welby, and other bishops and cross-bench peers.
The Right Reverend Welby, who also serves on the Government’s Banking Commission, said some rates were ‘clearly usurious’.
He added: ‘It used to be said that you couldn’t take away people’s beds and cloaks because they were essential for life. That is the Hebrew scriptures. Today, there are equivalent things being taken away as a result of these very high rates of interest.’
The amendment would have given the new regulator, the Financial Conduct Authority, the power to cap interest rates if it felt firms were fleecing customers.
If Lib Dems peers had abstained or voted in favour, the Government could have been defeated.
However, Treasury Minister Lord Sassoon scotched a rebellion by offering to bring in a similar measure in exchange for the amendment being dropped. He told peers: ‘We need to ensure that the Financial Conduct Authority grasps the nettle when it comes to payday lending.’
The Bill will have its third reading next week.
Lord Mitchell said the plan would help ‘those who live in the hell-hole of grinding debt’. He said: ‘The losers are clearly the loan sharks and the payday lending companies. They have tried every trick in the book to keep this legislation from being approved and they have failed.’
Lenders currently face no restrictions on what they charge, with some customers paying annual interest of more than 4,000 per cent
Labour MP Stella Creasy warned that her party could revive its amendment if the Government’s measure did not go far enough.
Last night, the Government played down accusations that it had made a U-turn and sources said the Bill could have given the FCA powers to cap the cost of credit by 2014.
The Office of Fair Trading says payday firms lend 1.8billion a year.