Payday loan lender backs MP's push to cap cost of borrowing

In a desperate economy, it is reported that Ms. Creasy wants to stop the "legal loan sharks" by putting a cap on interest rates charged on products such as payday loans before Christmas when a boom in applications is expected.

Gary Miller-Cheevers comments:

"Payday loans fill a short term need and used - and charged for - responsibly, can be a cost-effective way to get emergency cash when the need arises.

"With research showing that 31% of Britons have no accessible savings, if someone is hit with an unexpected bill, a payday loan could help them manage until they get next paid.

"However, there are lenders who are not responsible and who charge their customers extraordinary amounts to borrow a smallish amount of cash.

"Certainly, the idea of some kind of cap in theory always sounds sensible and we endorse that. The problem is what are you looking to cap - the APR or the cost of credit?

"The APR being an expression of annual interest is a wholly inappropriate measure of a loan that can last from three days to a few months in extreme cases. Our average loan request is for a term of 19 days and works out at a daily rate of 1% interest.

"Speedeloans is all in favour of expressing the cost of their loans in pound terms, so customers can firstly, easily compare the actual cost, and secondly, quickly work out if it is something they can afford.

"If we relate our loans to various options like borrowing £100 from a friend on a Tuesday until the end of the week, and buying him some fish and chips as a 'thank you' for £5 on the way home from the pub on Friday after paying him back, this equates to a daily rate of 1.25% or an APR of over 6,000%.

 "If total cost of credit is the target, maybe the authorities should start with the banks who can charge £5 per day for a £100 unauthorised overdraft, which equates to an APR of over 80,000%."

Mr Miller-Cheevers summarises:

"We fully endorse stopping disreputable companies from piling a debt of misery on to their customers with extravagant loan costs - however, it has to be done in such a way that the less than scrupulous providers cannot still rip-off unsuspecting customers in other ways - such as charging higher fees and penalties."