A crackdown on payday loans is too weak, campaigners say.
The new rules of the Financial Conduct Authority mean that there will be a 0.8% daily limit on interest and fees added to any loan that is not repaid on time. There will also be a limit of £ 15 on default or penalty charges.
The total cost of the loan – including interest and fees – cannot exceed twice the original amount borrowed.
The authority said the rate cap would mean no one will pay more than £ 24 in interest on every £ 100 borrowed over 30 days.
These measures have been welcomed by consumer groups, although some fear that the crackdown will limit the choice of borrowers, some of whom will be forced to turn to loan sharks.
The FCA estimates that 7% of current borrowers will no longer have access to payday loans – 70,000 people – because of the payday cap.
He said: “These are people who probably would have been in a worse situation if they had gotten a loan. Price caps therefore protect them.
But Labor MP Stella Creasy, who has long fought payday lenders, called it “an early Christmas present for legal loan sharks.”
Calling the plans “too weak,” she said, “We fought so hard to end the legal loan sharking. Let’s not let predatory lenders slip through the cracks now. “
There are concerns that the multibillion-pound industry will shrink due to the cap, which could make people more vulnerable to loan sharks.
Alec McFadden, director of the center and treasurer of the Salford Credit Union, welcomed the announcement but said more needs to be done to promote other viable sources of credit.
He said: “There is still a lot to do. We are now calling on the government and the banks to release up to £ 10 billion to be given to credit unions to provide cheap and readily available credit to help the most vulnerable members of our society.
“We are also calling for the current national minimum wage to be abolished with the national living wage at the new level of £ 7.85 to become the new national minimum payment for all workers in the company.
“We call on all political parties to consider establishing a list of senior government officials after the next general election for a credit union minister.
“The government has only come a third of the way with this – we can’t leave it as it is. The loan shark problem isn’t going to go away just because of this announcement, the demand is still there.
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Mike O’Connor, Managing Director of StepChange Debt Charity, said: “These rules deal with the problems with providing payday loans, but we also need to meet the demand for such harmful financial products.
“We see every day how payday loans have become the last resort for the financially desperate.
“Credit is rarely the answer to financial problems. We need better options for those battling the debt burden – that is now the challenge of policymakers, creditors and the voluntary sector.
FCA chief executive Martin Wheatley insists the move “will strike the right balance for businesses and consumers.”
He said that if the price cap was lowered, the country might not have a functioning market. And if it were higher, there wouldn’t be adequate protection for borrowers.
Mr Wheatley added: “For people struggling to repay, we believe the new rules will end the payday debt spiral.
“For most borrowers who repay their loans on time, caps on fees and charges represent substantial protections. “
“It is a step forward but we must do more”
Wythenshawe and Sale East MP Mike Kane said: “Before I was elected MP for Wythenshawe and Sale East, I was CEO of Movement for Change, which ran Sharkstoppers – a community campaign for fair credit.
“Today’s news is an important step in this ongoing campaign to end payday loan attrition and I welcome FCA’s announcement.
“Tackling payday lenders is just one piece of the puzzle in tackling the debt trap that far too many families find themselves in. We need to do more to help families manage their money and give them access to affordable credit when they need it. .
“This is why I explored with Manchester Credit Union how they can extend their coverage and work in the heart of Manchester communities.
“There is a lot of work to be done before we can claim a real victory against the scourge of debt and payday lenders, but things are moving, albeit very slowly, in the right direction. “
Manchester Citizens Advice Bureau director Marcus Graham said: “While fee caps are an improvement for clients, we have to remember that lenders are about making a profit. We need to continue to monitor the practices of payday lenders to make sure they don’t just find other ways to bill customers.
“Even with the new cap, there will still be people struggling with fees and growing debt. We advise anyone struggling with money management to seek free, independent and unbiased advice from their local CAB or other free advice provider on how to budget and the options available to those who are struggling. to manage their debt.
Last month, the MEN reported that more than 50,000 families in Greater Manchester were not keeping track of bills and loan repayments – with nearly 90,000 children becoming the “unwitting victims of the toxic cycle of debt”, according to the bosses of the charity.
A survey by the Children’s Society and StepChange Debt Charity found that 51,600 families in the area are living with debt problems, with a total of around £ 230million in bills and loans.
In Wythenshawe and Sale East, the region’s worst affected constituency, 21% of families are said to be in debt – around 3,126 households owe a total of £ 14.5million. Some 5,412 children are affected.