In austerity Britain one industry is thriving. The payday loans business has increased four fold this year, while more of their customers are struggling to pay back those loans.
Customers who cannot borrow money anywhere else cannot afford to be deterred by annual interset rates of 4 or even 5,000 per cent.
Wth no rules to stop them, lenders can charge what they like. Until now.
MPs are set to pass a law today that will give regulators the power to cap the cost of borrowing from lenders that are often described as legal loan sharks.
Walk up and down most British high streets these days and you will see payday lenders popping up everywhere. Turn on the TV and you will soon be assaulted by one of their loud and garish ads.
Those adverts will tell you up front – borrow £100 and pay back £125 next month. They do not tell you that equates to an annual APR of nearly 1,400 per cent. Nor do they tell you what happens if you cannot pay back the loan next month.
We know that more and more people are taking out payday loans to pay their rent or bills, to buy food for their families, not to splurge on luxuries.
And these people often cannot pay it back 30 days later. They soon get stuck in a spiral of debt, often borrowing from one lender to pay off another as their debts grow and grow until they owe several times the amount they originally borrowed.
Payday lenders love the UK because there is so little regulation here. In other countries, including the United States, there are strict regulations governing what they can charge. And new legislation means we may eventually see something similar here.
The new law does not set a top interest rate. Any cap will be up to the new Financial Conduct Authority and will not come into force before 2014.
Debt campaigners hope the threat of a cap will force the industry to behave better between now and then.
They do not want to see pay day lenders driven out of business as they say that would force desperate borrowers into the hands of illegal loan sharks.
But they do want the industry to accept there is a limit on how much they can charge their customers. From 2014 that will be a legal limit.