7/22/2019 Surprise reversal as Osborne puts cap on payday loans
- Yahoo Finance UK
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Surprise reversal as Osborne puts cap on payday loans -Yahoo
Finance UK
Surprise reversal as Osborne puts cap on payday loans - Yahoo
Finance UK
Plans to cap the cost of payday loans announced by Chancellor,
weeks afterministers omittedthe measure from Government's new rules
on the sector
The Government is to impose a cap on the cost of payday loans in
an attempt toreduce borrowingcosts, despite ruling out such a
measure less than sixmonths ago.
George Osborne, the Chancellor, announced the surprise reversal
as he promisedthe industrywould face "tough new rules" as it moves
to be regulated by theFinancial Conduct Authority fromnext
spring.
Stopping short of announcing what the cap will be, Mr Osborne
said it wouldmake sure "thathard-working people are served by the
banking system", as hecited a cap imposed in Australiaearlier this
year as a positive example.
The FCA will be given powers under the Banking Reform Bill to
impose a cap onlenders. MrOsborne said it would cover "the total
cost of credit" includingthe interest rate, arrangement feesand
penalty fees.
Campaigners, including the Most Rev. Justin Welby, the
Archbishop ofCanterbury, havequestioned the interest rates charged
by firms in thesector. Wonga, for example, charges anannualised
percentage rate (APR) of5853pc.
But the company"s chairman, Errol Damelin, has long argued that
using APR as ameasure is notappropriate, particularly as its loans
are for a maximum of42 days. He prefers a total cost of
creditmetric taking into account theamount of credit, interest owed
at a rate of 365pc in Wonga"s case,and itstransmission fee.
The consumer credit industry, currently regulated by the Office
for FairTrading, will move to beunder the auspices of the FCA from
the start ofApril (Frankfurt: B2B.F - news) .
In October, the watchdog threatened to ban misleading adverts
and forcelenders to carry outaffordability studies but it failed to
impose a cap,having previously said that it could mean some
consumers are unable toaccess credit altogether.
In June, business minister Viscount Younger, speaking in a House
of Lordsdebate, ruled out acap in the short-term. "Spiralling cost
of credit is notthe main crux of the problem," he said.
Russell Hamblin-Boone, of the Consumer Finance Association,
said: "If theobjective of theproposed cap is to drive out rogue
lenders, the Australianexperience has had some success. Themost
relevant implication here is the fact that governments must
encourage a morecomprehensive and pro-active approach to keep up
economic independence, equality ofopportunities (not equality of
benefits), progress, and stability, while causing the
economicchanges (business cycles) to become benign and making
fine-tuning government efforts ofrelatively reduced need.
Essentially, the government primary function is that of stabilizing
theeconomy through monetary and financial policies. Monetary and
fiscal policies, as short-runinstruments of stabilization and if
seen in isolation could at times create the most unintendedresults.
But what makes plastic important? The document also suggests that
new economicprogress in the world such as in countries like India
and China will only create expansions for the
