London councillor investigates instant cash loan companies

Labour MP Stella Creasey had been calling on the government to take action over instant cash loan companies by capping the interest rates they charge.

Supporters of her call say that borrowers can get themselves into a cycle of debt by relying on high interest short term loans.

Whilst not ruling out a cap completely, David Cameron would prefer to see lenders adhere to a voluntary code of practice on the basis that vulnerable people might be driven to less scrupulous loan sharks if they were denied access to small loans from instant cash loan providers.

Rowenna Davis, a London councillor, decided to investigate short term loans by posing as a customer and visiting lenders in South London. She explained that she needed to borrow money to pay her rent, but she was concerned about paying it back.

In one loan shop, Ms Davis was told not to worry and she could get an instant cash loan at a rate of 25% in 15 minutes. What she wasn’t told was that if she defaulted on the payment the interest charges would work out at 1,410.3% APR.

Ms Davis then went on to tell the shop cashier that she was worried she may be out of a job next year to which she was told that loans could also be made available to people on benefits.

Consumer Focus, a rights group, says around 66% of people who apply for a payday advance have a household income lower than £25,000, and the average loan is £300. For people like this, short term loans are often the only solution when they need quick cash.

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