The government is to introduce a new law to cap the cost of payday loans, in a move which has received a mixed response from local users of the loan facilities.
The level at which they will be capped is unconfirmed but it will be decided by the new regulator, the Financial Conduct Authority (FCA), and will be announced in the Banking Reform Bill.
In August this year, Liverpool City Council blocked all access to payday loan websites from public computers. This was because of a reported 36% rise in the annual debt from Merseyside residents.
Some payday lenders charge up 5000% in annual interest, however lenders say they are meant to be short-term loans so annual rates can make charges appear worse.
Thomas Green, 20, from Merseyside is a regular user of payday loan companies. He told JMU Journalism: “I use short term loan companies all the time. I’m a student so if my wages are late I get the odd £30 or so. I know they’re bad and I probably shouldn’t use them but they’re good if you’re 100% sure you can pay them back on the day you say.”
Mr Green agrees with government plans to cap interest rates. He said: “I think it’s a good idea. The rates they charge are ridiculous and I think these companies take advantage of desperate people who feel like they have no choice.”
Another student from Liverpool, Jake Matthews, 21, told JMU Journalism: “I got myself in a right mess. I borrowed too much and said I could pay it back sooner than I could. It’s so easy at the time because all you do is press a few buttons and money is in your bank.
“I don’t know if I agree with the cap because surely this means more people will use them. If they’re cheaper it’ll be more tempting for people struggling.”
Leader of the Labour party, Ed Miliband, has already pledged that he would cap the cost of payday loans, adding that lenders should be banned from advertising on children’s TV.