MP Welcomes plans to cap pay day loan costs
Written by author on December 5, 2013
Dumfriesshire, Clydesdale and Tweedale MP David Mundell has welcomed the announcement from the Chancellor of the Exchequer that the government will legislate to introduce a cap on the cost of pay day loans. The cap will be formally established through amendments to the Banking Reform Bill which is currently going through Parliament.
The local MP believes the announcement will build on the steps that the government has already taken to help consumers. It has created a new regulator, the Financial Conduct Authority (FCA), with much stronger powers to protect consumers in financial services, and has given the FCA powers to cap the cost of pay day loans. This amendment will put a duty on the FCA to use those powers to impose a cap and ensure that vulnerable people and those seeking credit are not subjected to extremely high rates of interest.
The government has always kept the case for a cap under review as the market has evolved. With growing evidence in support of a cap and emerging lessons from other countries – especially the cap on costs introduced in Australia this year.Meanwhile, pay day lenders are already on notice following the announcement by the FCA of tough new rules they will have to meet next year, something which Mr Mundell has already welcomed.
Commenting Mr Mundell said:“The Government has already created a powerful new consumer regulator to regulate the pay day lending industry and now we’re asking them to set a cap on the cost of credit. This is a major change from the situation we inherited, where the industry was almost entirely unregulated.”
“No one wants to see people in our region getting trap in debt, especially those who feel they maybe have no option but to take out loans at unrealistically high interest rates which makes it harder to pay the loan back. More needs to be done to protect borrowers and introducing a cap on interest rates and ensuring that the industry is properly regulated is a big step forward.”
He added: “I believe firms in the high-cost credit sector should meet high standards, lend responsibly and offer competitively designed and priced products that meet consumers’ needs. Equally, consumers should borrow sensibly, be able to exercise choice and have confidence in the system.”
