Ed Miliband, the leader of the Labour party, recently spoke of his plans to give local authorities in the UK more power to ban payday lenders, pawnbrokers and even bookmakers from town centres in the country.
The idea was a fundamental pillar of his political party’s local election plans and he wants to protect people from what he called “extortionate” rates of interest.
Speaking in Ipswich, the MP said that high streets are an important part of the British community and some have deteriorated in recent years as more shady businesses look to take advantage of people’s precarious financial situations.
Payday lenders are providing short-term, but extremely high interest loans to people who are struggling to make their salaries last from month to month.
This means that British consumers are paying large amounts of money just to keep enough cash in their accounts to cover direct debits and bills before their salaries replenish their funds. However, the high APRs – often way more than 1,000 per cent – can lead to unsustainable debt issues – particularly if a person misses the first payment.
Mr Miliband said that due to the state of the UK’s finances and the tough times that many people are facing, payday lenders have become some of the fastest growing businesses on the high street.
He said: “In hard times, it is no wonder people turn to them. But often they just engulf people in debts that they cannot pay.”
The leader of the opposition explained that at the moment consumers are sometimes left fending for themselves as many councils believe that they do not have the remit to “stand up for local people.”
He proposed that in order to tackle the issue that is seemingly crippling both the high street and people’s budgets, local authorities should have the powers to say what shops can start trading on their streets.
Mr Miliband’s comments came after the Treasury outlined its own plans to deal with payday lenders last month.
From 2014, the Financial Conduct Authority will have more power to restrict payday advertising and the Financial Services Authority will assess whether there are gaps in the current legislation that make consumers more vulnerable to problems caused by the lenders.
Debt Legal’s Jonathan Matthews has been helping people get out of debt for almost ten years and he has seen the problems that payday loans have caused since they became more widespread.
He believes that it is a frightening case of affairs that more and more of these lenders are opening up on the high streets of Great Britain.
However, Mr Matthews said that although many people do get extremely high interest loans from the high street, more access the services online, so any form of regulation would need to be on both a community and a digital level.
He said: “It is all too easy to take out a payday loan, but it can be very difficult to pay them back and the high interest charged means that debts can spiral out of control.
“Consumers should be very wary about getting out of debt or avoiding money issues by taking out more credit – especially when it comes at such a cost.”