Iain Dale has posted about a report that has been released by Grant Shapps called "Payday for Loan Sharks" which details home credit company charging interest rates from 100% APR to 10,000% APR.
I think it's worth taking a step back here for a second and clarifying something, these people are not loan sharks. Loan sharks break your legs when you don't pay. These people are bastards, absolute bastards in fact, but they are operating within the law.
For me personally, none of what Grant Shapps has revealed is new news really. I've been living in South-East London in the poorest postal districts of the country for the past decade and doorstep lending with insane interest rates but within the Consumer Credit Act laws has grown at a massive pace.
The only way to resolve these sort of issues really is to implement some sort wholesale reform of the Consumer Credit Act. That might mean implementing a moving ceiling interest rate on consumer credit agreement that tracks the base rate of the Bank of England.
This might seem like terribly left wing of me and anti-market, but as it stands currently there is nothing that legally stops these companies operating like this. High interest rates for those with poor credit history are a reality of course because of risk, but likewise, crucifying someone financially with an APR of 1000% is just nuts.
There needs to be a balance struck really that allows companies to operate with higher rates of interests for those with poor credit, but also doesn't impact on the market for that business too much. This sort of thing might only need to be temporary if it was coupled with greater education of personal finance in schools.
Clearly you should not legislate for stupid people, however, there is a problem of exploding personal debt in the UK, and at the bottom end it is happening because the CCA provides the scope for legal money lending to the poorest in society on these sort of scales. Perhaps therefore some sort of legal ceiling caps should be implemented with a sunset clause to allow for pesonal finance education to filter through the system?
Update: I should say that I do believe that a private agreement with a money lender is a private agreement. The problem in these cases is often that the person borrowing doesn't really understand what they are doing. The tactic of saying "buy/borrow this and it will only cost you £8.99 a week" makes things sound so cheap when really they're not. Perhaps trading standards changes as well to stop stupidly expensive credit being quite so opaque?