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Bradford councillor calls for cap on interest rates
A senior Bradford councillor is calling for a cap on interest rates charged by payday lenders to help limit the danger of people getting into debt.
Councillor Val Slater, chairman of West Yorkshire Trading Standards, was speaking after proposals aimed at preventing people getting caught in the ‘spiral of debt’ of payday loans were revealed.
The Financial Conduct Authority (FCA), which assumes regulation of the consumer credit industry from the Office of Fair Trading in April 2014, has set out its vision by announcing a series of tougher requirements for payday lenders. The new rules place a stronger emphasis on affordability checks, a limit on loan rollovers and a restriction on the number of times lenders can try to reclaim money from borrowers accounts.
But Coun Slater said: “We welcome these steps, especially the affordability test and limit on rollovers, which can only help limit the danger of people getting into unsustainable levels of debt. But I am disappointed that there isn't a cap on the interest rates these companies can charge.”
When asked if this was a feasible option, an FCA spokesman said: “We do have the power to cap interest rates and it is a hugely important power for us to have. “However, we did not think that there is sufficient evidence to introduce an interest rate cap without any unintended consequences, for example reducing the amount of credit in the market or driving people towards loan sharks.”
A spokesman for Bradford-based charity Christians Against Poverty, who recently revealed that four out of five people in the district who take out payday loans do so to cover food and basic living costs, said: “Our experience tells us that a cap on APRs are a bit of a red herring because they show the annual interest rate for a short-term loan that is not intended to be annual at all.
“Instead, what we want to see is a lower cost of credit, clearly stated so people know exactly how much their loan will cost.”
The Consumer Finance Association, which represents the major short-term lenders operating in the UK, felt that imposing a cap on interest rates raised the prospect of irresponsible lenders using loopholes to reclaim profits via hidden fees.
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