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The government vowed to step up its fight against potentially unscrupulous lending practices amid fears that lower earners were being drawn into a spiral of debt by expensive short-term loans.
Ed Davey, consumer affairs minister, acknowledged yesterday there was concern around so-called payday loans and said the government had started discussions with the industry to ensure codes of practice “contain real enhanced consumer protection”.
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A spokesman for David Cameron, prime minister, added that Downing Street was working with the industry and consumer organisations to ensure vulnerable people were protected.
The use of small-scale payday loans, the subject of a Financial Times investigation this week, has grown rapidly as borrowers’ incomes are squeezed and they struggle to access bank credit.
About 4m people a year tap payday loans in the UK. The lending has long attracted criticism from consumer groups and politicians. The annual rates of interest can reach 5,000 per cent.
Much debate has focused on whether the UK should introduce a formal cap on interest rates, following similar moves by some US states and some European countries. But in a report the government warned that cutting off access to high-cost loans could leave poorer consumers struggling to access legal credit sources at all.
Payday lenders said the high annual percentage rates were misleading. Some argue that complaining that a payday loan has a 4,000 per cent APR is like complaining that a hotel room costs £10,000 a year; neither is intended for long-term use.
The Consumer Finance Association, which represents payday lenders, has noted that payday loans attracted fewer than 60 complaints between July and December 2010.
Source: http://www.ft.com/intl/cms/s/0/6022a824-20f3-11e1-8a43-00144feabdc0.html#axzz1fv2k1XGW
The government vowed to step up its fight against potentially unscrupulous lending practices amid fears that lower earners were being drawn into a spiral of debt by expensive short-term loans.
Ed Davey, consumer affairs minister, acknowledged yesterday there was concern around so-called payday loans and said the government had started discussions with the industry to ensure codes of practice “contain real enhanced consumer protection”.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/6022a824-20f3-11e1-8a43-00144feabdc0.html#ixzz1fvsO9Uoe
A spokesman for David Cameron, prime minister, added that Downing Street was working with the industry and consumer organisations to ensure vulnerable people were protected.
The use of small-scale payday loans, the subject of a Financial Times investigation this week, has grown rapidly as borrowers’ incomes are squeezed and they struggle to access bank credit.
About 4m people a year tap payday loans in the UK. The lending has long attracted criticism from consumer groups and politicians. The annual rates of interest can reach 5,000 per cent.
Much debate has focused on whether the UK should introduce a formal cap on interest rates, following similar moves by some US states and some European countries. But in a report the government warned that cutting off access to high-cost loans could leave poorer consumers struggling to access legal credit sources at all.
Payday lenders said the high annual percentage rates were misleading. Some argue that complaining that a payday loan has a 4,000 per cent APR is like complaining that a hotel room costs £10,000 a year; neither is intended for long-term use.
The Consumer Finance Association, which represents payday lenders, has noted that payday loans attracted fewer than 60 complaints between July and December 2010.
Source: http://www.ft.com/intl/cms/s/0/6022a824-20f3-11e1-8a43-00144feabdc0.html#axzz1fv2k1XGW
