MP welcomes cap on cost of credit

South Lakes MP Tim Farron has welcomed the news that the government is to introduce a new cap on the cost of payday loans.

The level of the cap, which has not yet been announced, will be decided by the new industry regulator, the Financial Conduct Authority (FCA). The Treasury says there is "growing evidence" in support of the move, including the effects of a cap already in place in Australia.

The cap will be included in the Banking Reform Bill, which is already going through Parliament. Some payday lenders have been criticised for charging more than 5,000% annual interest.

Tim said: "Today's announcement is very welcome news. This is something I've been pushing for behind the scenes for the last few months. But capping credit isn't enough - we also need to support credit unions.

"Credit unions are owned and controlled by their members and are run by and for local people not for profit. I would like the Government to enact small changes to support credit unions. But councils can also offer practical help and support to credit unions as they get going throughout our area."

Tim has also called for more work to support credit unions. He backed a report, which was released in June by think-tank Civitas, which suggested that credit unions should be allowed to take bigger deposits if they are to become a viable alternative to high-cost lenders. Credit unions are financial co-operatives that operate in local areas, offering small loans to members.

The government has been encouraging growth in the sector as an alternative to expensive payday lenders. From April next year, the maximum interest rate that can be charged by the credit unions on loans will be increased from 2% to 3% a month.

Currently credit unions often make a loss on loans under £1,000 because of the admin fees involved. Tim is supporting recommendations in the Civitas report like removing the £10,000 cap on the amount of money that businesses can place with credit unions, by doing that they can attract bigger deposits and allow them to help and support more people on low incomes.

Tim has previously signed the pledge to join the South Lakes Credit Union.