Liberal Democrat peer Lord John Sharkey has tabled an amendment to the banking reform bill calling for payday loans to be capped at £300 and 60 day grace periods for all loans.
The Government bill proposes the ring fencing of banks’ retail and investment arms as well as the abolition of the approved persons regime for deposit-taking institutions.
The bill has passed the House of Commons and will go through report stage in the House of Lords next Tuesday.
The FCA will regulate payday lenders from next April with the power to cap the cost and duration of credit, ban adverts and curb debt collecting techniques.
Lord Sharkey’s amendment calls for the maximum payday loan to be £300, excluding fees, and fees capped at 10 per cent of the loan size plus a £3 verification fee.
He is calling for loan terms to be restricted to between seven and 31 days and allow borrowers to extend the loan term for an additional 60 days beyond the due date without any additional charges.
In addition, he believes there should be a 24 hour cooling off period between loans where no new agreement can be entered into.
The peer is also calling for restrictions of one outstanding loan per customer and to establish a database of loans at the lenders’ cost.