The Government is looking to introduce a new levy on payday loan companies to fund support for people who fall victim to illegal loan sharks, the Chancellor has said.
George Osborne told MPs that the proposal was being examined to plug funding gaps in the national authority dedicated to cracking down on such illegal lending people who got into debt.
“We take very seriously illegal loan sharks and excessive interest charges on payday lending – which is why it was Conservatives who introduced the first ever cap on payday lending,” he told MPs at PMQs.
“[With regards to] the funding for illegal money laundering and loan shark teams we are looking now at a levy on the industry to meet the funding requirement [of the illegal loan shark team].”
A similar proposal for “a new levy on payday lenders” notably appeared in Labour’s 2015 election manifesto.
The money from that levy would have been used to fund “low-cost alternatives” to such lending, including credit unions, however.
Illegal loans sharks are defined as people who lend money without permission from the Financial Conduct Authority, which regulates such matters.
Birmingham City Council hosts a national illegal money lending teams that crack down on loan sharks.
That team has helped 24,000 loan shark victims get £63m of illegal debts written off, according to Labour MP Richard Burden, who asked the Chancellor about the issue at PMQs.
Mr Burden accused the Government of cutting funding for the team.
Responding to the Chancellor’s statement, he said: “Debt is a real problem in my constituency, and throughout the UK. That’s why the work the Illegal Money lending Team do is so important.
“George Osborne MP didn’t answer my question about why they are cutting the Team’s budget even though they have successfully helped more than 24,000 victims of loan sharking write off £63m of illegal debts.
“I hope the Chancellor and the Business Secretary, Sajid Javid, reflect on the impact the cuts will have on the service, particularly during the Christmas season, and that Sajid Javid answers the question when he comes before the House on Tuesday.”
In July of this year the Consumer Finance Association, which represents legal payday loan companies, claimed that a crackdown on its member would result in more vulnerable people being driven into the hands of illegal loan sharks.
Debt charities however criticised the claim, arguing that it was “dishonest”.
The Govenment introduced a cap on payday loan interest rates at the start of this year. The loans are now capped at 0.8 per cent per day with no particular loan allowed to exceed twice its initial borrowed amount.Reuse content