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1,270% APRC - the new UK usury rate ceiling?
In the UK consumers can still pay extortionate rates of interestwithout being able to blame the banks. So-called ‘payday loans’ in the UK are marketed as an alternative to more affordable overdraft credit.  They are extended to people who struggle  to make it to the end of the month and their next wages.  This liquidity problem is exploited by the banks. But the banks at least appear  to be innocent since the British system allows specialist consumer credit lenders to provide high cost loans in their place. The exploitation of borrowers is therefore undertaken by these companies rather than directly by the banks themselves.

However, there is no doubt that the banks remain in the background.  It is their money – although largely hidden through a complex web of investment deals and subsidiary organisations - which is extended to consumers at usurious rates. They are responsible for arranging the financing  of the payday lenders.   Now, the British public got a bit worried about this situation and as usual a report was ordered which revealed that there were some problems.  Also as usual, the first recourse of the regulators was to place the blame for these problems on the victims; to argue that consumers should not take up such loans and needed more financial education. But, following a lengthy campaign, the administration was for the first time forced to cap the rates. Of course, these are capped in most of the rest of the EU with rates around 12% in Germany, France, Belgium, the Netherlands, Poland, Italy.

It appeared that the UK was prepared to take action.  But the result has been  so much “ sound and fury, signifying  nothing”.  The Financial Conduct Authority has now announced its intention to introduce a cap in January 2015.  However, this is  formulated in an illegal, and   misleading, form of a daily rate (see Annex to the Consumer Credit Directive 2008). This daily rate is to be set at 0.8% per day, which on a typical 30 day payday loan would equate to 1,270% APRC (!).  In words, “one thousand two hundred and seventy percent”.

Even in Manchester at the times of the so-called Manchester Liberalism such exploitation was unimaginable. We learn much about the UK Euro-scepticism but obviously too little about its reasons.  A consultation on the proposal is now taking place until 1st September.  See the press release from UK partner, the Centre for Responsible Credit.

ID: 48523
Author(s): DG/UR
Publication date: 16/07/14

Created: 16/07/14. Last changed: 22/07/14.
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