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MP welcomes tougher rules for pay day lenders, but calls for a cap on interest rates

October 4, 2013 4:37 PM

FT in LDNSouth Lakes MP Tim Farron has welcomed today's announcement on pay day lenders, but has gone further and called for a cap, or limit, on the interest rates that lenders can charge.

The Financial Conduct Authority (FCA) has proposed that all borrowers should have an "affordability" check before being given a loan. Among other new rules, the FCA wants to put risk warnings on adverts and marketing material.

Among other proposals, the FCA suggested that:

· Lenders will not be able to extend, or "roll over", loans more than twice

· The number of attempts a payday lender can take money out of a borrower's account using a Continuous Payment Authority (CPA) should be limited to two

· Anyone extending a loan should be told about free debt advice

· The FCA could order lenders to change misleading adverts, or drop products that are not in the best interests of consumers.

Tim has further called for the FCA who take over as the new regulator for consumer credit, in April 2014, to consider whether to put a cap on credit. The current regulator, the Office of Fair Trading (OFT), wrote to 50 payday lenders earlier this year to see if they were suitable to continue in business.

Nineteen lenders then withdrew from the market as a result.

Tim said: "Today's announcement is welcome, but it is still not enough. This morning I saw figures advertised loans at 1737% interest - I want the Government to cap the level of interest that can be charged so we do not see the obscene levels currently charged. We also need to support Credit Unions.

"Credit unions are owned and controlled by their members and are run by and for local people not for profit. I would like the Government to enact small changes to support credit unions. But councils can also offer practical help and support to credit unions as they get going throughout our area."