AN MP has launched a new scheme to tackle pay-day loans.
Grahame Morris is making a stand against what he describes as the legal version of loan sharking.
Mr Morris is backing a scheme being run by County Durham Credit Union, of which he is a member, which will allow those more hard up to take £500 out to buy furniture.
The loans will be available to people who complete a two week employability course.
Those successful will also receive £200 from the East Durham Partnership.
The £700 can then be used to buy a basic furniture package.
The loans have to be repaid over 18 months at £7 per week.
Mr Morris, MP for Easington, said: “I remain a firm critic of pay-day lenders, not least because in 2013 average household energy bills are expected to reach an all-time high of £1,300.
“Add to this the pay and benefit freeze and the inflation-busting public transport and rail fare increases just announced.
“It has been estimated that four million people planned to take out a pay-day loan just to cover the cost of Christmas.
“Companies advertising on commercial television and radio offer loans with mind-boggling interest rates of up to 4,000 per cent or more, and they are now operating in every community and lending online.”
Pay-day loans are short-term unsecured loans that often have high interest rates, and their critics say they are used mainly by those in poverty.
In November it was announced the Government intends to change the law to allow restrictions to be imposed on their interest rates.
Ministers are amending the financial services bill to give the new Financial Conduct Authority the power to limit charges, but that will not come into force until 2014.
Mr Morris said: “Most other countries have tackled this toxic form of finance by capping the cost of credit and limiting the debt consumers can get into when borrowing money this way.
“Until recently, the British Government resisted taking action, instead relying on these companies themselves to stick to their own voluntary codes of conduct. A report by the Office of Fair Trading delivered a damning indictment of the Government’s position, showing how badly these firms treat British consumers.
“Without action now, with the rising costs households face, 2013 could be a window of opportunity for these legal loan sharks.”
In 2011 Wonga.com made £45.8million.
Twitter: @Monica_Turnbull
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