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MPs' anger as Prime Minister rejects cap on pay-day loans
NORTH-EAST MPs vowed to fight on last night to cap sky-high ‘payday’ loans – despite David Cameron firmly rejecting the idea.
The prime minister told MPs that any cap – to limit the interest lenders can charge - would not work, because it would drive poor people into the arms of illegal loan sharks.
Instead, he hailed a tough threat by the Office of Fair Trading (OFT) to strip the leading 50 payday lenders of their licences if they fail to mend their ways, within 12 weeks.
In a damning report, the OFT condemned the lenders for:
- Failing to conduct adequate assessments of affordability before lending, or before rolling over loans.
- Failing to explain adequately how payments will be collected.
- Using aggressive debt collection practices.
- Failing to treat borrowers in financial difficulty considerately.
The OFT said it had “uncovered evidence of widespread irresponsible lending and failure to comply with the standards required” of lenders.
It said: “Too many people are granted loans they cannot afford to repay and it would appear that payday lenders' revenues are heavily reliant on those customers who fail to repay their original loan in full, on time.”
But Darlington MP Jenny Chapman, who has long campaigned for a cap, immediately said the OFT’s threatened crackdown did not go far enough.
Leading North-East figures – including the former Bishop of Durham and Paralympian Baroness Tanni Grey-Thompson – have highlighted the pain caused by high-interest loans.
Some can be completed online in under an hour. In one example, £250 borrowed for 14 days would see £290.78 repaid - at an annual rate of 4,214 per cent.
Ms Chapman said: “This won’t stop loans to people without proper checks, that they can’t repay, the targeting of unsuitable people, or the rolling over of charges.
“What we want is a cap on the cost of credit and that is what we will still be arguing for.”
And Tom Blenkinsop, the Middlesbrough South and East Cleveland MP, said: “A cap on the total cost of borrowing would be the best way to get the industry under control.
“This would make it easier to ensure that those who use these companies don’t get into a spiral of debt, as they try to pay off loans with extortionate rates of interest.”
But, rejecting the cap, after being quizzed in the Commons, Mr Cameron said: “Without an effective regulated sector, there are far more dangers from loan sharks.”
Nevertheless, campaigners still have hope because, from next year, a new watchdog – the Financial Conduct Authority (FCA) – will assume responsibility for the controversy.
The FCA has vowed to do “further work” and, a government source told The Northern Echo: “It will be up to the FCA to decide if there should be a cap.”
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