Victory for payday loans campaign as ministers agree crackdown on charges

Lenders who fail to obey new rules could find loans are made unenforceable and don't need to be repaid

The Government agreed tonight to crack down on the charges and unscrupulous practices of high-cost credit companies in a major victory for payday loan campaigners.

Facing defeat in the House of Lords over a crucial payday loan vote, ministers backed down and decided to undertake a “clean up” of the system.

The move follows months of campaigning by The Independent to introduce controls on the activities of rogue lenders who prey on the vulnerable.

Unscrupulous lenders encourage people who cannot obtain credit to take out loans with high charges which they cannot afford to repay. The net effect is that they end up in a debt cycle where they are forced to borrow just to repay their loans, often with disastrous consequences.

To curb lenders' excesses, Labour peer Lord Mitchell had proposed an amendment to the Financial Services Bill to cap the cost of payday loans.

During the debate, the Archbishop of Canterbury-elect, Justin Welby, who had supported the amendment, said rates charged by payday lenders were "clearly usurious".

In accepting the defeat, Lord Sassoon, the Commercial Secretary to the Treasury, promised to introduce a new amendment which would "cover both the total cost of credit and the total duration of credit". "This is a critical area that needs cleaning up," said Lord Sassoon, a former investment banker, adding that the amendment would be prepared in time for the third reading of the Bill next Wednesday.

The rules will give the Financial Conduct Authority – the new City regulator taking over next year – greater powers to protect consumers from extortionate interest rates and unscrupulous practices. Many payday lenders charge 4,000 per cent APR or more in interest and have been known to target people on benefits or students.

The Treasury last night promised that the FCA will be able to crack down on questionable practices such as rolling over loans indefinitely, which can leave people owing 10 times what they borrowed. The regulator will also be given powers which would mean that, if lenders failed to stick to the rules, loans could become unenforceable – which could mean they would not need to be repaid.

The FCA is set to take over regulation of the high-cost credit sector in 2013 with the new powers set to be enforced by 2014, according to Treasury estimates. Stella Creasy, the Labour MP for Walthamstow, who has led a campaign to end legal loan sharking, welcomed the news, but said the new amendment must include a cap on the cost of payday loans.

Yvonne Fovargue, Labour MP for Makerfield, who has also campaigned against payday lenders, warned that the battle to control their excesses continues. "Charges are just one part of the problem," she said. "There need to be limits on the use of continuing payment authorities, which allow lenders to dip in and out of borrowers accounts at will. One of my constituents had her bank account wiped out just before last Christmas while another saw a payday lender make 20 withdrawals in a day."

But the Shadow Financial Secretary to the Treasury, Chris Leslie, criticised the Government for taking so long to agree to the crackdown.

"It shouldn't have taken nine months since we tabled this amendment for the Government to cave in," he said. "A growing number of people from across the political spectrum have been uncomfortable with the Treasury's refusal to take tougher action – so this change of heart is welcome news."

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA celebration of British elections
Arts and Entertainment
Kanye West, performing in New York last week, has been the subject of controversy as rock's traditional headline slot at Glastonbury is lost once again
music
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Life and Style
Drinking - often heavily - is a running theme throughout HBO's Game of Thrones adaptation
food + drink
News
people
  • Get to the point
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Digital Marketing Consultant

£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...

Recruitment Genius: Assistant Stores Keeper

£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Software Developer - C# / ASP.NET / SQL

£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living