The Financial Services Bill which has just had its first reading in parliament will see the creation of a new regulatory body to replace the old Financial Services Authority as well as replacing some of the powers of the Office of Fair Trading.
The bill is quite wide ranging as it will cover such things as the way banks are regulated as well as the way in which loans companies treat their customers.
It is an amendment to the bill that concerns the way in which short term loans companies will be able to charge their customers.
At present, there is no limit to what short term loans companies can charge and the APRs can reach up into the thousands percent, especially if the original loan is extended.
Stella Creasy, well known crusader for the rights of short term loans borrowers who has being an almost one woman campaign against what she sees as “legal loan sharks” is the MP who has tabled an amendment to the bill which is intended to put a maximum limit on the amount that short term loans companies will be able to charge.
While the amendment is not quite an actual interest cap, it is well on the way to being one as it definitely puts a limit on the sort of money that some companies have been able to charge.
The amendment is a little loosely worded and basically gives the new body, the FCA, the power to impose sanctions on a loans company if it thinks that it is acting to the detriment of a customer. The cap it would be able to impose if it saw fit would be on the total amount charged which includes interest and loans fees.
The number of high street short term loans companies and pawnbrokers who are offering cash loans has mushroomed since the credit crisis struck the country a few years ago and Creasy argues that Britain has become an easy target for such companies as The Money Shop and Cash Converters as well as internet based small loans companies like Wonga because of the lack of an interest cap.
The short term loans industry has always argued that a cap is unnecessary and counterproductive and is insistent that their industry is a high risk one that requires high interest to defer the cost of constant defaulting by customers.