Companies such as Wonga, Wizzcash and QuickQuid are currently being targeted in the UK ‘s government’s plan of a new law to cap the cost of payday loans.
The FCA (Financial Conduct Authority) will insert the proposal into the Banking Reform Bill already passing through the Parliament.
The rise of uncontrolled interest rates for loans has been among the core factors for the Treasury’s decision. The UK Chancellor George Osborne has said there would be control on charges, arrangements and pay fees.
In 2013 Australia imposed an interest limit of 4% in a month, after a maximum up-front fee of 20%.
The Australian Securities and Investment Commission (ASIC) has banned 20 people for operating without a licence or engaging in irresponsible lending and has launched court actions.
The FCA has already limited loan roll-overs to just two, as well as placing a restriction the use of Continuous Payment Authorities (CPAs).
The Consumer Finance Association (CFA) has expressed its scepticism about the cap, given the comparison with other countries and the fact that it could restrict the access to credit in favour of illegal lenders.
There is agreement between the primary UK political parties on the matter, with Labour leader Ed Miliband asking for more powers to be given to the councils in order to limit the expansion of payday loans shops in the town centres, as well as banning these companies’ adverts from children’s TV.
The FCA will take over the industry in April 2014, so the possible changes would be seen from 2015 on.