Payday lenders to face interest rate cap
Payday loans costs will be capped under plans being announced by the government on Monday.
New financial regulator the Financial Conduct Authority will set the level of the cap, which will cover fees charged on the loans as well as interest.
Treasury officials said the government had always kept the case for a cap under review and there is now “growing evidence” internationally to support the move.
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The changes will be made through an amendment to the Banking Reform Bill currently going through Parliament.
It will put a duty on the FCA to use powers it already has to impose a cap, the Treasury said.
Earlier this year Labour announced that it would cap the cost of credit from payday lenders and force them to put funding into credit unions.
Mr Osborne denied the move marked a turnaround for the government, which had initially resisted calls for a cap.
‘Free market’
He told the BBC Radio 4 Today programme: “I don’t accept it’s a departure from any philosophy.
“The philosophy is we want markets that work for people, and people who believe in the free market, like myself, want that free market to be properly regulated.”
He added: “The idea that we are following Labour – the Labour Party were in office for 13 years, Ed Balls and Ed Miliband.
“This issue came up, they were in the Treasury all those years, they did absolutely nothing.
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“I am happy to pay tribute to some individual MPs like Stella Creasy, like Robin Walker the Conservative, who have campaigned on this issue.
“But the idea that the Labour leadership, who were running this country for 13 years and did nothing in this space, took a lead is, frankly, fanciful.”
The move comes after Business Minister Jo Swinson warned in September that interest rate caps to tackle payday lenders could result in “unintended consequences”.
She said rate-capping could mean people who might be able to afford to pay back loans finding they cannot get credit and possibly turning to “unsavoury alternatives”.
‘Tougher regulation’
Business Secretary Vince Cable, speaking on BBC Breakfast, said: “What we have done, and Jo Swinson has led this, is we have been introducing tougher regulation of payday loans, this is something that has already been agreed, is going through Parliament.
“There has been pressure to make this stronger, through the form of interest rate caps, and Liberal Democrat parliamentarians have got amendments down in Parliament.
“I was going to call them in with Jo Swinson to talk to them about how we take it forward. There is evidence in both directions here – in the United States they have introduced caps on interest rates, they do seem to work
“On the other hand, we commissioned a study from the University of Bristol that warned about the dangers, if it is not done carefully, of letting the ‘baseball bat brigade’ into this industry.
“So it has got to be very, very carefully done. But the Chancellor and the Government in general have clearly listened to the people campaigning for the interest rate cap and are now taking action on it.”
‘Consultation in tatters’
Ms Creasy, shadow consumer affairs minister, warned “the devil really is in the detail”.
She told the Today programme: “It was us who fought tooth and nail to give the regulator the power to do this but the regulator was saying ‘Look, we need the political will to make capping a reality’.
“This move today leaves in tatters the regulator’s consultation that was announced just a few weeks ago where they specifically ruled out bringing in a cap because they felt there wasn’t the political will to do it.”