Responding to today’s announcement of the level set for a cap on high cost credit agreements by the Financial Conduct Authority Labour’s Shadow Competition and Consumer Affairs Minister, Stella Creasy MP, said:
“Today’s news will be welcomed as an early Christmas present for Britain’s legal loan-sharks. This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers- such a high cap will do little to tackle these rip off charges.
“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on lenders. Borrowers in countries like Japan, Australia, Canada and parts of America all have better protection from being preyed on by these companies, showing what can be done to end legal loan-sharking.
“This year debt charities and the financial watchdog have reported rises in cases involving payday loans causing problems for consumers, showing just how toxic this industry is for many. Today’s announcement means yet again these sharks have slipped through the net.
“We have already seen many of these lenders try to evade capture by changing the names and nature of their product. Two years is too long for consumers to find out they are still being ripped off in this market. The FCA must commit to reviewing the level of the cap and what it covers within a year to ensure it reaches a more effective level.”
1. Stepchange debt charity saw a 42% rise in payday loan cases this year with 13,000 more payday loan borrowers seeking help in the first half of 2014 compared with the same period in 2013 – http://www.stepchange.org/
2. The Financial Services Ombudsman received double the number of complaints about payday lenders in 2013-14 than in the year before and found against lenders in two-thirds of case: http://www.financial-
3. A cap of 0.8% per day means companies can charge £24 per £100 borrowed. In its market study the OFT found the average cost of providing credit to be £25 per £100 meaning many firms were offering it at much lower costs.