Consumer groups want the British government to crack down on payday lenders. (Photo Credit: CC BY/Andrew Magill/Flickr)
Groups such as the Consumer Credit Counseling Service (CCCS) and campaign organizations such as End Legal Loan Sharking are pressuring the British government to crack down on the short-term consumer credit market, reports This is Money U.K. A lower interest rate cap on “doorstep lenders and payday loan firms” is currently being pursued in proposed legislation. While these loans may be legal, argues End Legal Loan Sharking, the rate charged to high-risk consumers is far from reasonable.
Legal loan sharking is not payday lending
The mainstream media and consumer interest groups such as End Legal Loan Sharking tend to place payday loans and loan sharking into the same boat. That is the same mistake politically motivated consumer groups make in the U.S. The payday loan industry is governed by numerous legislative bodies in the U.K., notes Payday Loan Advances. The British Cheque Cashers Association (BCCA) and Insolvency Practitioner’s Association (IPA) regulate the function of payday loan companies in the United Kingdom. Thus, when compared with loan sharking, such payday loan features as APR are more highly regulated.
No fees are good fees, argues the establishment
According to End Legal Loan Sharking’s figures, “loan sharks” can charge as much as £82 ($132) in interest and fees for every £100 ($160) borrowed. What This is Money fails to report is that such loans are typically offered at high risk to the payday lending organization. Hence, protection must be built in.
Instituting a ‘Ten Minute Rule’
Labour MP Stella Creasy has championed a Ten Minute Rule that will reach British Parliament on Wednesday. The rule is designed to open up the U.K. consumer credit market, giving even those consumers with less than perfect credit access to affordable credit. It’s called a Ten Minute Rule because the supporter has 10 minutes to make the case for the bill in question.
“The Government needs to understand action is needed now to address the high cost of lending which exploits some of the poorest people in our communities who can least afford the charges door step lenders set,” Creasy told the British media.
The proposed Ten Minute Rule would cap payday lending APRs and fees. It would also empower local authorities to restrict payday loan business licenses and expand consumer access to credit union loans.
