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The Government is set to change the law to allow curbs on payday loan interest rates, ministers confirmed today.
Treasury Minister Lord Sassoon announced a new Government amendment would be drafted to clarify the Financial Services Bill to crack down on 'legal loan sharks'.
The surprise move helped the Coalition avoid another Lords defeat on a similar Labour amendment, which has been backed by crossbenchers including Justin Welby, the Archbishop of Canterbury-elect.
Labour agreed to back down after assurances that the bill would be changed to make explict new powers to curb interest rates charged.
Treasury minister Lord Sassoon told peers: "We need to ensure that the Financial Conduct Authority grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution.
Treasury sources insisted the shift was not a U-turn and that the Financial Services Bill would already have given the FCA some powers to cap payday loans. But Labour hailed the change as a clear reversal of the Government's position.
Lord (Parry) Mitchell, who tabled his party's amendment, told the Lords:
"The minister has made a very welcome statement of intent and to be honest it is as much as we could have hoped for. With the Government’s cast iron acceptance of the principle of my amendment, plus I hope the three other co-signatories can have an effective veto over the revised amendment at third reading - this issue is now where it should be - beyond party politics.
"The winners are those who have campaigned for this change in the law and I must mention my honourable friend Stella Creasy MP who has been tireless in her pursuit of justice.The other most welcome winners are those who live in the hell hole of grinding debt - their lives will become just a little easier.
"The losers are clearly the loan-sharks and payday lending companies. They have tried every trick in the book to keep this legislation from being approved and they have failed. Their failure is our victory."
Lib Dem peer Lord Rennard first revealed the shift when he tweeted today that the Government has now accepted the principle of a cap and will bring forward its own amendment on the issue next week.
"Govt will now accept basis of Parry amendment on loan sharks and will toughen it in a further amendment next wk. I am v pleased," Lord Rennard tweeted this afternoon.
Shadow Treasury minister Chris Leslie said: "In the face of certain defeat in the Lords, the Treasury have been forced to accept the principle of Labour’s amendment and give the new financial regulator a clear power to protect consumers from extortionate interest rates."
Labour MP Stella Creasy, a prominent campaigner against “legal loan sharks”, earlier urged peers to help those people “caught in a toxic cycle of borrowing”.
Writing for PoliticsHome, Ms Creasy said there was “widespread public support” for the change.
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