The Government has caved in to cross-party demands to cap the cost of credit for payday lenders by amending the Financial Services bill.
Under the proposals the Financial Conduct Authority will have the power to cap the cost and duration of credit for short-term loans.
A Labour-led amendment proposed by Lord Mitchell and backed by Bishop Justin Welby, the next archbishop of Canterbury, meant the Government was facing defeat in the House of Lords.
Commercial secretary Lord Sassoon said: “We need to make sure the FCA 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.”
Lord Mitchell welcomed the Government’s moves and withdrew his amendment but warned it could be introduced later if the new rules are not tough enough.
He said: “This issue is now where it should be – beyond party politics. The most welcome winners are those who live in the hellhole of grinding debt. – their lives will become just a little easier. The losers are clearly the loan sharks and the payday lending companies. They have tried every trick in the book to keep this legislation from being approved and they have failed.”
At the Liberal Democrat annual conference in September, deputy chief whip Lord Dick Newby said the Government was prepared to regulate the sector if it did not abide by a tough new voluntary code.