House of Lords wants a cap on payday loan interest

The issue of payday loans, and the interest charged on them, has reached the House of Lords, reports the BBC.

A Labour Peer, who is also a Bishop, felt that the Government's Financial Services Bill did not go far enough to protect people from falling foul of high interest charges on payday loans.

Lord Mitchell and the incoming Archbishop of Canterbury, Justin Welby, both signed an amendment to the bill. The amendment would give the planned Financial Conduct Authority (FCA) the power to cap interest rates on payday loans.

As a result, the Government has decided to introduce an amendment of its own next Wednesday - although it is reported that the bill would have given the FCA some powers to cap payday loan interest anyway.

Payday loans are designed for short-term borrowing. The idea is that whatever you borrow, you repay within a few days or weeks, with interest. While payday loans can be affordable if repaid promptly, problems start when people fail to repay them on time.

If a payday loan debt isn't repaid on time, further charges / interest are added. It's possible to 'roll over' loans like this, more than once in some cases - but the longer a loan is rolled over, the larger the debt grows.

However, the interest and fees that are charged on some of these short term loans can work out to an equivalent APR of nearly 4,000%. By comparison, the average APR on an overdraft is around 20%.

A spokesperson for debt management company Gregory Pennington commented: "Anyone struggling to repay a payday loan debt can speak to a debt adviser to discuss their options.

"We often see people who have got into real dire straits because they've rolled over a payday loan and the interest has grown to an unrepayable amount. Sometimes people turn to other payday lenders and end up with multiple debts.

"We are here to help people who are struggling to repay any kind of unsecured debts, including payday loans. Don't struggle alone, get the help you need."

Lucy Bower

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