Loan sharks could cash in following caps on payday lending, according to the Citizens’ Advice Bureau.
Caps limiting the interest rate and fees instated by so-called payday lenders have been introduced by the Financial Conduct Authority in a bid to protect people struggling with debt.
As of Friday, January 2, companies such as Wonga – who previously had annual interest rates higher than 5,000 per cent – must comply with regulations that will see interest and fees capped at 0.8 per cent per day.
Under the new rules, the total cost of a loan will be limited to 100 per cent of the original sum and default fees will be capped at £15.
While the move has been welcomed by the Darlington Citizens Advice Bureau (CAB), the organisation has warned the changes may cause more vulnerable people to fall prey to loan sharks.
Darlington CAB’s Dawn Gill expressed fears that loan sharks could take advantage of those now unable to access as much money as they need.
“Caps are a good thing but clients will still want money from somewhere – they’re being protected from high interest rates but companies may not lend as much.
“They may not be able to get as much as they were expecting or anything at all.
“We haven’t seen it happen yet but the changes are still new and it’s a worry.”
Ms Gill urged payday lenders to work with CABs in order to help their clients manage their finances.
“The ideal situation would be for payday lenders to refer their clients to us before they take out a loan at all and let us help them to maximise and manage their income.
“I’d advise people to come to us and let us help them find ways to manage.
“We can help with benefits, cutting energy bills or working out incomings and outgoings and priorities.
“There are a lot of people prioritising paying back intimidating people who knocked at their door with money rather than paying their rent or council tax but they could end up losing their home.”
To anonymously report a loan shark, contact the Illegal Money Lending Team by emailing firstname.lastname@example.org
or calling 0300-555-2222.
Source – Northern Echo, 20 Jan 2015