The FT reports this morning that payday lenders (or legal loan sharks as they are also known) have been flooding into the country looking to take advantage of hard-up recession-hit borrowers and the UK’s lax lending laws. Borrowing at rates of up to 5,000 per cent, customers can find their debts escalating at a startling pace.
Even though many other countries have interest rate caps, the UK has never gone down that route. The government has always said it is wary of implementing such a cap in case it pushes poor people into the hands of illegal loan sharks instead.
Labour MP Stella Creasy has also waged a long campaign to get the government to crack down on these companies, and now her campaign is gaining momentum.
Alongside the FT’s investigation this morning there was a survey carried out by Radio 4′s Today programme, which found over 3m people are likely to use such lenders in the next six months.
And when asked whether the government would follow other countries in implementing a maximum interest rate this morning, a spokesman for Number 10 seemed to give some ground. He said:
We know there are concerns about these companies and the way they operate. We want to ensure that vulnerable peope are properly protected and are working with the industry and consumer organisations to ensure that people have the protections they need.
When asked if this could include an interest rate cap, the spokesman said:
That is not a new issue. It has been looked at in the past. Clearly it is an issue that we can look at. The approach at the moment is to consult with consumer organisations in the industry and look at whether there is a way we can protect vulnerable people.
Ed Davey, the business minister in charge of this area, is very reluctant to implement such a policy. But he and the rest of the government might find that the pressure becomes too great for them to ignore.