PAYDAY lenders are facing a crackdown after the UK Government pledged to amend the law to allow a cap on the "obscene" interest rates charged by some credit firms.
The newly launched Financial Conduct Authority (FCA) is to be given the power to limit the cost of credit in the face of annual interest rates of up to 4000% which can be charged on short-term loans to see people through until their wages are paid.
Treasury minister Lord Sassoon told the House of Lords the watchdog will also have the power to ensure that loans do not roll over indefinitely.
Consumer groups and MSPs welcomed the measures, with figures revealing Scots are twice as likely to struggle financially as a result of a payday loan compared to the rest of the UK.
There have been calls in Parliament for high-profile firms such as Wonga, which sponsors Hearts, and QuickQuid to be reined in.
Margaret Lynch, chief executive of Citizens Advice Scotland, said: "We need to see more detail of exactly what is being proposed, but there is no doubt the high interest rates associated with payday loans is a huge problem, and has led many families into the misery of debt.
"We have long called for action to tackle this issue, and if the Government is now moving towards restricting these high interest rates then we would see that as a very positive step.
"The high interest rates are the core problem, and tackling these would be the key to saving thousands of people from getting stuck in a spiral of debt."
SNP MSP Dave Thompson, who has also campaigned on the issue, said: "Payday loans promise short financial relief, but in reality are a dream today and a nightmare tomorrow as interest rates increase the loans rapidly.
"This is a welcome announcement, albeit a long overdue one, which will bring us into line with most other European countries."
Independent MSP Margo MacDonald also welcomed the move, adding that any cap should prohibit lenders from charging more than three times the amount borrowed.
The move emerged at the report stage of the Financial Services Bill in the face of a Labour amendment.
Lord Sassoon said he would bring forward a measure when the Bill has its third reading next week if Labour peer Lord Mitchell withdrew his amendment.
He said: "We need to ensure the Financial Conduct Authority grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution.
"Interest rates charged by many lenders go well beyond the obscene. We have an industry flying by the seat of its pants, observing at best the flimsiest requirements of the law and their own pathetic codes of conduct.
"They need to be much more closely controlled."
Lord Mitchell praised the minister's "very welcome statement of intent". He said: "This issue is now where it should be – beyond party politics.
"The winners are those who live in the hell-hole of grinding debt. The losers are clearly the loan sharks and the payday lending companies. They have tried every trick in the book to keep this legislation from being approved and they have failed.
"Their failure is our victory."
Energy minister Fergus Ewing added the Scottish Government is also exploring further solutions and alternatives to payday loans, including encouraging people to seek advice before applying for further credit.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article