Duncan Lewis

Residential Property

Commercial Property

Payday loans with astronomical rates may be banned very soon

Date: (19 December 2012)    |    

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Government is going to cap payday loan rates to help cash strapped borrowers from falling into desperate debt.
The rates have reached astronomical proportions in recent times and were creating a debt trap for people who had no other means to get some cash to meet their immediate requirements.
The current annual rates charged by some controversial firms offering short term, instant loans could be as high as 16,000 per cent. However such loans may now be banned.
The Government would add a clause into the Financial Services Bill to allow the regulator to limit interest rates.
The cap would be decided by the new Financial Conduct Authority and apply to all payday lenders.
A recent damning report by the Office of Fair Trading (OFT) had revealed that some payday lenders were even dipping into customer’s bank accounts without clarifying if they had failed to make their repayments.
The OFT is at present investigation 20 payday lenders which it thinks are breaking rules.
The consumer watchdog has seen 800 percent increases in complaints regarding such companies over the past two years.
Those campaigning against such firms and insisting on cap include the incoming Archbishop of Canterbury Justin Welby and Labour MP for Walthamstow Stella Creasy.
A spokesman from debt charity StepChange says that it welcomed the move and hoped that it would help address some of most worrying trends being seen such as the rise in multiple loans and increasing amounts owed by people seeking its help.
More than 16,500 people with problems linked to payday loan debt have been approaching debt counsellors with more than 2000 of them struggling with five of these loans or more.
The borrowers approaching counselling has already touched close to the last years figure of 17,500, at the same time and it would be not long when it would be breached with the arrival of Christmas when many more would be added to the existing figures. At the same time in 2009 the figure was only 6,500.
The payday loan firms have long argued that quoting standard interest rates, known as an APR, are irrelevant because they average out the cost of a loan over a year.
This, they say, makes their rates seem more expensive than they really are.