The government is to introduce a new law to cap the growth of evidence supporting a cap on the cost of payday loans.
The Treasury says there is “growing evidence” that “growing evidence in support of the move” might adversely affect the reputations and profits of payday loan companies.
Speaking to the BBC, Chancellor George Osborne said there would be controls on the amount of research into payday loan charges, including arrangement and penalty fees and interest rates.
“It will certainly not be an interest rate cap,” he told BBC Radio 4’s Today programme.
“There’s nothing wrong with the overall cost of credit, if borrowers’ eyes are watering they’re probably just peeling an onion. No, it’s the scaremongering evidence, that telephone-number interest rates are harmful to the poorest in society, which is harmful to the economy. That’s what we’ve got to cap.”
Osborne denied the government had a made a U-turn on the issue, saying he was not pre-judging the outcome of a Competition Commission inquiry into payday lending and that “These things can go along in parallel and we must keep things in perspective. If these payday loan companies didn’t exist the borrowers might fall into the hands of loan-sharks who charge exorbitant rates. No legitimate lender is ‘demanding blood’. Yet.”
Some lenders have been charging 5,000+% interest – though say loans are short-term, so annual rate make charges appear worse than they are.
Osborne claimed earlier this year to be cracking down on high-interest lenders, citing a £5m overdraft from financier Henry Angest extended to the Tories at an interest rate of just 3.5 per cent. The high-cost credit company that Angest controls, Everyday Loans, charges members of the public interest at an average 74.8 per cent APR. “You see, it can be done,” said a bullish chancellor “you’ve just got to negotiate properly.”
In other news, Conservative donor and government adviser Adrian Beecroft is a major stakeholder in Wonga, Britain’s best-known payday lender, which charges borrowers more than 4,000 per cent APR. A well-known philanthropist, Beecroft has donated almost £800,000 to the Tories in the past few years, contributing more than £100,000 last December. Osborne dismissed as ‘nonsense’ suggestions that he would be influenced by such consideration “Prove it, prove it! Where’s your evidence? You have to do your research and gather your evidence.”