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26-11-2013

The Chancellor has announced a cap will be introduced on payday loans despite the decision not very long ago of the FCA not to introduce such. The Chancellor says: “It will not just be an interest rate cap. You’ve got to cap the overall cost of credit.”

The FCA calls the proposal “intrusive” and the Consumer Finance Association says it will reduce the availability of credit.

It is true that there is a balance to be struck so that people can access finance flexibly when needed, and not have to go to real loan sharks of the kneecapping variety to get it, but there used to be far more use of the extortionate credit override –I recall seeing off claims for 54% interest in the 80s.

Now with such instant access to cash so that people have no real cool-off period, it seems likely that some people regret their borrowing decisions and get in too deep when they should instead be looking at debt relief and budgeting advice.

However the rules need to apply fairly to all, so charges for a day’s unauthorised overdraft likewise need to be proportionate; something which didn’t find favour with the courts under current legislation.

The availability of lending is the issue. Lenders aren’t in it for the goodness of their health, they are in it because it’s a lucrative market. If they are driven out of the market towards other investments by restrictions on their operations, there needs to be a rethink of borrowing or of lending or of both to avoid people being driven to the really desperate unlicensed and criminal end of the market.

Frances Coulson

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