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| Payday loan firms face cap after government U-turn | Payday loan firms face cap after government U-turn |
| (4 months later) | |
| In a significant climbdown, the government has agreed to change the law to give the new Financial Conduct Authority (FCA) powers to set a cap on exorbitant interest rates charged on payday loans. | In a significant climbdown, the government has agreed to change the law to give the new Financial Conduct Authority (FCA) powers to set a cap on exorbitant interest rates charged on payday loans. |
| In the House of Lords, the next archbishop of Canterbury accused payday loan companies of charging "clearly usurious" rates, while the Treasury minister Lord Sassoon accepted the broad principles of a cross-party move to set a cap. | In the House of Lords, the next archbishop of Canterbury accused payday loan companies of charging "clearly usurious" rates, while the Treasury minister Lord Sassoon accepted the broad principles of a cross-party move to set a cap. |
| The move is a victory for the campaigning Labour MP Stella Creasy, who has highlighted the devastating impact of 1,700% interest rates. | The move is a victory for the campaigning Labour MP Stella Creasy, who has highlighted the devastating impact of 1,700% interest rates. |
| Sassoon told peers: "We need to ensure that the FCA grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution." | Sassoon told peers: "We need to ensure that the FCA grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution." |
| The government was facing possible defeat in the Lords over an amendment put down by Labour peer Lord Mitchell which would have given the FCA the power to impose an automatic cap on interest rates charged. | The government was facing possible defeat in the Lords over an amendment put down by Labour peer Lord Mitchell which would have given the FCA the power to impose an automatic cap on interest rates charged. |
| Sassoon said the government could not accept the cross-party amendment because the government would take an "evidence-based approach" to a cap after considering a new report on credit by academics at Bristol university. | Sassoon said the government could not accept the cross-party amendment because the government would take an "evidence-based approach" to a cap after considering a new report on credit by academics at Bristol university. |
| He said the government would table its own amendment to the financial services bill because an automatic cap could harm the interests of the users of pay day loan firms. However, the government will give the FCA the power to impose a cap. The new body will be allowed to decide whether to take such action when it takes over the regulation of credit in 2014. | He said the government would table its own amendment to the financial services bill because an automatic cap could harm the interests of the users of pay day loan firms. However, the government will give the FCA the power to impose a cap. The new body will be allowed to decide whether to take such action when it takes over the regulation of credit in 2014. |
| "The government is, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm vulnerable consumers suffer as a result," Sassoon said. | "The government is, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm vulnerable consumers suffer as a result," Sassoon said. |
| "Capping the cost of credit and the number of times the loan can be rolled over is a major market intervention. It could bring huge benefits for consumers, as a recent study in Japan has indicated. But experience in Germany and France has shown there can be equally momentous unintended consequences including reduced access to credit for the poorest and most vulnerable consumers, even driving them to illegal loan sharks. These international lessons demonstrate that we need robust evidence to support any decision to introduce such a cap." | "Capping the cost of credit and the number of times the loan can be rolled over is a major market intervention. It could bring huge benefits for consumers, as a recent study in Japan has indicated. But experience in Germany and France has shown there can be equally momentous unintended consequences including reduced access to credit for the poorest and most vulnerable consumers, even driving them to illegal loan sharks. These international lessons demonstrate that we need robust evidence to support any decision to introduce such a cap." |
| Lord Justin Welby, the bishop of Durham who has been appointed next archbishop of Canterbury, said interfering in the market, by imposing a cap, would normally drive the poor towards loan sharks. But, in voicing his support for the cross-party Mitchell amendment, he told peers: "If you look at the profits that are being earned in this market at the moment, it is clear that the barriers to entry are so high that there is absolutely no way in which people can come in and start shaving off the abnormal rates that are being achieved through participation in this market. If it was working, the interest rates would be dropping. It is as simple as that. | Lord Justin Welby, the bishop of Durham who has been appointed next archbishop of Canterbury, said interfering in the market, by imposing a cap, would normally drive the poor towards loan sharks. But, in voicing his support for the cross-party Mitchell amendment, he told peers: "If you look at the profits that are being earned in this market at the moment, it is clear that the barriers to entry are so high that there is absolutely no way in which people can come in and start shaving off the abnormal rates that are being achieved through participation in this market. If it was working, the interest rates would be dropping. It is as simple as that. |
| "The rates are clearly usurious, to use an old fashioned expression. It used to be said in the old days that you couldn't take away people's beds and cloaks because they were essential for life. That is the Hebrew scriptures. Today, there are equivalent things being taken away as a result of these very high rates of interest. It's a moral case which is bad for us, bad for the clients, bad for all of us in this country when it is permitted to happen." | "The rates are clearly usurious, to use an old fashioned expression. It used to be said in the old days that you couldn't take away people's beds and cloaks because they were essential for life. That is the Hebrew scriptures. Today, there are equivalent things being taken away as a result of these very high rates of interest. It's a moral case which is bad for us, bad for the clients, bad for all of us in this country when it is permitted to happen." |
| The government climbdown came in backstage talks in the Lords as ministers faced defeat on the amendment that was also backed by Lady Howe and Lady Grey-Thompson. In talks over lunchtime, the government promised to return with a version of the amendment when the bill returns for its third reading next week. In a sign of goodwill, the government promised it would give the amendment's backers an effective veto over its wording. | The government climbdown came in backstage talks in the Lords as ministers faced defeat on the amendment that was also backed by Lady Howe and Lady Grey-Thompson. In talks over lunchtime, the government promised to return with a version of the amendment when the bill returns for its third reading next week. In a sign of goodwill, the government promised it would give the amendment's backers an effective veto over its wording. |
| Treasury sources played down the significance of Sassoon's move on the grounds that the bill already contained a cap. They pointed to remarks by Lord Newby, the justice minister, who told peers last month that the bill "provides the FCA with a broad power to make rules on products and product features, including in relation to specific product features such as the duration of contracts". | Treasury sources played down the significance of Sassoon's move on the grounds that the bill already contained a cap. They pointed to remarks by Lord Newby, the justice minister, who told peers last month that the bill "provides the FCA with a broad power to make rules on products and product features, including in relation to specific product features such as the duration of contracts". |
| Mitchell, who delivered his speech from his iPad, told peers: "This amendment does not seek to ban payday lending. It seeks to give the FCA the power to cap interest rates when they are causing consumer detriment. It is a may, not a must. It puts the responsibility squarely into the hands of the FCA." | Mitchell, who delivered his speech from his iPad, told peers: "This amendment does not seek to ban payday lending. It seeks to give the FCA the power to cap interest rates when they are causing consumer detriment. It is a may, not a must. It puts the responsibility squarely into the hands of the FCA." |
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