NEW rules which will limit the interest rates charged by loan companies have been welcomed by a senior Labour politician.
Parliamentary candidate for Milton Keynes South, Andrew Pakes, said the move would help families struggling with the current financial situation.
The Government announced the new rules last Wednesday following a Labour amendment in the House of Lords.
The Conservative/Lib Dem coalition accepted the need to cap the costs of credit and promised to bring forward their own amendment next week as part of the Financial Services Bill.
The reforms will give financial regulators the ability to cap the excessive costs of credit offered by loan sharks.
By capping charges it would limit the costs for loans to an acceptable ceiling and help millions of families who are borrowing from loan sharks to make ends meet by encouraging firms to reduce their charges.
Over 60 per cent of people who took out payday loans are using the money to pay for household bills or buying essentials like food, nappies or petrol, according to research by Which?.
The new figures show an alarming picture of people getting trapped in a downward spiral of debt, caught by exorbitant penalty charges because they cannot afford to pay back the loan on time.
Labour’s amendment in the Lords had widespread support from across the House with Crossbench Peers, Baroness Tanni-Grey Thompson and the Bishop Justin Welby, the incoming Archbishop of Canterbury, backing it.
Mr Pakes said: “This is a welcome u-turn by the Government and will begin to put a cap on the charges that payday loan companies can charge.
“Far too many families are struggling to make ends meet and turning to loan sharks for help as the recession continues to bit.
“Well done to anti-poverty campaigners for forcing the Government to listen to recent on this issue.
“The research proves that the majority of borrowers take out loans to pay bills and buy food. I look forward to hearing more about the Government’s proposals next week.”