CALLS have been made to cap the amount of interest that payday loan companies are allowed to charge their customers.
Currently, high-interest providers are able to lend money at annual percentage rates (APR) of more than 4,000 per cent.
But Sean Bambrick, an agent for Woodville-based Carson Finance, which provides loans, told the Mail a cap should be introduced to limit the spiralling effect of such large interest rates.
“People feel payday loans are a quick fix,” he told the Mail. “If people are desperate for money, they will not always do what’s best for them.
“Of course it’s people’s choice if they take out a payday loan, but it’s often the only choice they have.”
Mr Bambrick, who also serves as a Labour member of South Derbyshire District Council, said he agreed with the principle of a cap on the amount of APR a company is allowed to charge its debtors. This, he said, could only be achieved through a new Act of Parliament.
He said: “I agree in principle with a limit on APR. APR of hundreds of per cent sounds horrendous, but APR of thousands of per cent is ridiculous.
“The companies selling these loans also need to do a better job of telling customers what they are letting themselves in for.”
The Office of Fair Trading has this week threatened to strip irresponsible providers of their licences. It said some payday loan firms were guilty of using misleading advertising, conducting inadequate checks on customers’ financial histories and using aggressive debt collection tactics.
Mr Bambrick said the payday loan market — now worth £2 billion annually in the UK — had ballooned in recent years because people could not obtain finance from banks. “The banks are not lending enough to help people,” he said.
South Derbyshire’s Conservative MP, Heather Wheeler, also backed the clampdown on payday lenders.
“I would urge people to think very deeply before entering into one of these agreements,” she said. “The payday loan providers have had a warning shot fired over their bows this week and if they continue to abuse their positions then the Government will act.”
The MP said credit unions and building societies provided better solutions.