‘Obscene’ interest on payday loans
By politics.co.uk staff
Payday loans are charging individuals “obscene” levels of interest, a leading Conservative politician has said.
While the Bank of England cut its base rate to 1.5 per cent yesterday, home credit firms – covering doorstep loans and payday loans – are charging as much as 21,000 per cent APR.
“We think it is obscene that anyone should end up paying 10,000 per cent APR, particularly when the evidence suggests that these loans are targeted at some of the most vulnerable members of our society,” said Grant Shapps, shadow housing minister.
He uncovered cases of a £200 loans requiring £300 to be paid back after just one month and annual interest rates of ranging from 1286 per cent to 2,100 per cent.
However, payday loan companies have claimed the higher risk clients they offer loans to and short-term nature of loans – often repaid after a month – mean comparing rates with standard loans is unfair.
Mr Shapps’s report into payday loans hits out at the government for allowing increasing over-indebtedness and ignoring financial illiteracy.
He finds a major problem – highlighted last year by the Competition Commission (CC) – to be a lack of competition in the market with just six major firms dominating lending.
The CC found the lack of competition was leading to individuals to be overcharged by up £100 million a year.
The industry is estimated to be worth over £3 billion a year in the UK.
Mr Shapps is also calling for greater free financial advice and greater use of credit unions to target those alienated from the existing financial services.