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There are moral, economic and political reasons to cap payday loan charges — so it's good news that the Government plans to do so

By Peter Hoskin
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Even though it came about from fear of a Lords defeat, the Government’s promise to crack down on the vertiginous charges imposed by payday loan companies on their customers is still a welcome development. I wrote about these loans for the Spectator and the Times (£) last year. They’re the sort that come with 4,000% APR attached, and can plunge people into a whirlpool of debt, borrowing more and more just to keep up.

There are arguments, some of them fairly persuasive, in favour of the Government staying clear of this issue: that the State shouldn’t interfere in private transactions; that these loans are only intended to be short-term fixes, and could thus be cheaper than the charges levied for missing a bill or credit card payment; that it’s better the high interest rates of these companies than the knuckledusters of illegal lenders; and so on.

But, as I see it, the costs of inaction overwhelm all that. As I said in a section of my Times article (and I hope you don’t mind me quoting myself):

“As any member of Alcoholics Anonymous will tell you, the first step in dealing with the problem is to recognise it. Britain, alas, is a long way from doing that. Both the Tories and the Liberal Democrats talked about the horror of personal debt before entering government, but have fallen largely silent since. As a general rule, debt suits governments as it gives the illusion of prosperity and recovery.

When George Osborne spoke of our ‘credit card economy’ in his party conference speech last year, he was weaving a metaphor about the state of the public finances — not referring to the very literal fact that there are more credit cards in the country than people. It has been left to some of Labour’s more vibrant MPs, such as Stella Creasy, to force the issue in Parliament. And they have done so, rightly, in defence of the least well-off, on whom loan sharks prey.

One might take a laissez-faire stance and say that it is not particularly conservative or liberal to sift through people’s private business. Far easier to slap a political superinjunction on the matter, and keep shtoom.

But the political, economic and — yes — moral reasons for the coalition to speak up are multiplying. The debt-fuelled consumption that defined the pre-crash years is still alive and screaming.”

Yesterday’s news doesn’t mean that the matter is resolved, however. We are yet to hear details about the Government’s measures, and Labour are threatening to return their own amendment to the Lords it if they regard those measures as insufficient. But let’s hope it doesn’t come to that, as this is one area where policy is long overdue.

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