Payday loans to be capped

Payday loans costs will be capped under plans being announced by Chancellor George Osborne. Regulator the Financial Conduct Authority will set the level of the cap, which will cover fees charged on the loans as well as interest.

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Government 'must look at causes of payday loan use'

Citizens Advice chief executive Gillian Guy has welcomed the proposed cap on payday loans but said that it was important to address the causes of the increase in their use:

The Government's plan to cap the cost of loans only goes to show how out of control the industry is ...

Government must also tackle the underlying need for payday loans and ask what is driving people to short-term credit in the first place.

– Gillian Guy, chief executive, citizens advice

New figures released by Citizens Advice found that three out of four borrowers find it difficult to repay payday loans, while 62 percent of loans still come without proper checks to assess whether borrowers can afford to repay.

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Australia's cap on payday loans has revealed issues

by - Consumer Editor

I've spoken to people on both sides of the debate - the industry and anti-debt campaigners - and both are questioning the Government approach.

The industry is worried that the Government is using the Australian model, where they set an upper cap earlier this year. The industry here says that evidence from Australia is that it has forced some payday lenders out, which has opened the door for illegal loan sharks.

If we had the same kind of cap, it would cost about £24 to borrow £100 for a month, which is not a lot different from the situation we already have where the average is about £25 for that month.

In Australia, many of the payday firms have also managed to find loopholes.

Vince Cable warns about letting 'baseball bat brigade' in

Business Secretary Vince Cable has warned that regulating payday loans creates a risk of "letting the 'baseball bat brigade' into this industry" - apparently referring to loan sharks.

Speaking on BBC Breakfast, he said he supported the action being taken to cap charges, but added that it had to be "very, very carefully done".

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.

– vince cable, business secretary

Read: Payday loans costs to be capped

Labour: Payday cap proposal doesn't go far enough

Labour shadow business minister Stella Creasy has accused the Government of "following Labour’s lead" on capping the charges for payday loans.

But she said in a statement that the proposal doesn't go far enough "to address the damage this toxic industry has done":

We want a levy on these companies to expand the funds available to credit unions so they can serve more people, powers for councils to limit the growth of these companies on our high streets and a ban on advertising to children of these products.

– stella creasy, shadow business minister

Watch: Payday loans cap to 'protect against exploitation'

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Payday loans costs to be capped

Payday loans costs will be capped under plans being announced by the Chancellor. Credit: PA Wire

Payday loans costs will be capped under plans being announced by Chancellor George Osborne.

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.