Payday loan rates 'to be limited'

28 November 2012 Last updated at 18:09 GMT Many people face ruin because of the interest charged on payday loans, campaigners argue The government is to change the law to allow restrictions to be imposed on the interest rates charged for so-called "payday loans".

Ministers are to amend the Financial Services Bill to give the planned Financial Conduct Authority the power to limit charges.

The news follows concerns over annual interest rates of up to 4,000%.

The government faced a possible House of Lords defeat on an amendment put down by a Labour peer over the issue.

BBC political correspondent Norman Smith said it was being suggested that there should not be a blanket cap on interest rates but the Financial Conduct Authority (FCA) would be able to investigate different loan schemes and then set a limit on the amount of APR charged.

'Usury'

Labour peer Lord Mitchell put down the amendment to the bill, which was also signed by Lord Welby, the incoming Archbishop of Canterbury.

Lord Welby called the most costly loans "usury", saying that curbing them was a "moral" issue.

There are concerns that small loans, intended to be short-term, have become prohibitively expensive, and in some cases ruinous, if not rapidly repaid.

The government has now agreed instead to introduce its own amendment to the bill next Wednesday.

Treasury minister Lord Sassoon told peers: "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."

Sources insist it is not a U-turn and that the Financial Services Bill would already have given the FCA some powers to cap payday loans.

Peers have been told that some loans involve interest rates running into thousands of per cent.

Lord Mitchell told peers:" This is an industry run by cowboys on the fringes of legality."

Reacting to the concession, Lord Mitchell praised the minister's "very welcome statement of intent".

He said: "This issue is now where it should be - beyond party politics."

Lord Mitchell added that the change would help "those who live in the hell-hole of grinding debt. Their lives will become just a little easier.

"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. Their failure is our victory."

But an official study in 2010 said payday loans provided a legitimate, useful, service that helped cover a gap in the market.

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Payday lenders' new code in place

26 November 2012 Last updated at 12:45 GMT The new code includes freezing of interest payments for those suffering from financial hardship A new payday lenders' code of practice designed to give more protection to those in financial difficulty should now be fully in place.

A deadline has been reached for lenders to ensure they keep to the minimum standards included in the code.

This includes a limit on the rollover of payday loans, and breathing space for customers who are struggling to repay.

The code comes in as regulators formally investigate some lenders.

'Significant step'

The code, put together by the Consumer Finance Association (CFA), which represents lenders, include aspects of a charter agreed with the government and other industry bodies in July.

This should mean payday lenders only roll over a loan to a customer on a maximum of three occasions. There should also be a minimum of 30 days of breathing space for customers who need to get their financial affairs in order, and the immediate freezing of interest for any customer in financial hardship

"While this is a significant step forward for the responsible members of the payday industry, it is far from the end of the journey," said Russell Hamblin-Boone, chief executive of the CFA.

"We will be introducing an independent monitoring framework and continue to work with the government, regulator and consumer groups to set high standards."

However, when the plans were announced in July, some consumer groups argued that the agreement did not go far enough.

The other three trade bodies that agreed to the new charter are the BCCA, a trade association for lenders offering short-term loans, the Consumer Credit Trade Association and the Finance and Leasing Association.

The code is voluntary, and any lender breaking the rules would be told to change the way it worked or face expulsion from their association.

Meanwhile, the OFT has warned the industry to improve the way it lends money and collects debts, or face fines or closures.

It has now begun formal investigations into several payday lenders over aggressive debt collection practices following a review of the industry.

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