Britain Says Considering Interest Rate Cap On Payday Lenders

by
Reuters
Britain is considering a cap on the interest rates that short-term payday lenders can charge as part of plans to regulate the sector, Prime Minister David Cameron said on Wednesday.

Britain is considering a cap on the interest rates that short-term payday lenders can charge as part of plans to regulate the sector, Prime Minister David Cameron said on Wednesday.

The payday loan industry, which provides short-term loans to tide borrowers over until payday, has boomed since 2008 as banks have grown more averse to making risky loans, forcing some to find other ways to manage their day-to-day household finances.

The system has been criticised for targeting vulnerable customers and charging high interest rates, which can top 5,000 percent on an annual basis, that unions and lawmakers say leave many borrowers heavily indebted.

"We continue to look at the issue of a cap and I don't think we should rule that out," Cameron said in parliament.

"We do have to bear in mind what has been found out in other countries and through our own searches about whether a cap would prove effective."

The government plans to hand over supervision of the industry to the Financial Conduct Authority, the financial watchdog, in April.

Earlier this month the FCA was criticised for not including a rate cap in its plans to regulate the industry. Its proposals centred on affordability checks and a limit on the number of times loans can be extended.

Australia, most parts of the United States and some European countries have capped payday loan interest rates but the FCA has argued that such an approach could push borrowers into the hands of backstreet loan sharks.