U.K. opposition leader Ed Miliband will say today his Labour Party aims to increase levies on the profits of payday lenders such as Wonga.com Ltd. if it wins the 2015 general election.
On a visit to a credit union -- a community-run provider of low-cost loans -- in south London, Miliband will say he aims to use the funds to double government spending available to such unions to 26 million pounds ($41 million) a year. Labour will consult interested groups on the details and rate of the levy.
“We would cap the cost of credit, halt the spread of payday lenders on our high streets and force them to fund the credit unions that can offer a real alternative for people in desperate need,” Miliband will say, according to an e-mailed statement from his office. “We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders.”
Labour, which is leading Prime Minister David Cameron’s Conservatives in the polls, is campaigning on the cost of living. The opposition is seeking a cap on the amount of interest payday lenders can charge as part of a clampdown on consumer prices, which is also targeting rail fares and energy costs. The party would also give local authorities powers to limit the number of payday-lending shops in town centers.
Cameron said yesterday the government is “still considering the issue of a cap, and I do not think we should rule it out.” He told lawmakers that “we must bear in mind what has been established in other countries, and by our own research, about whether a cap would prove effective.”
Payday lending has doubled in three years to 2 billion pounds, with providers charging on average 25 percent for a 30-day loan, according to the Office of Fair Trading. Credit-card debt costs about 1.5 percent for the same period.
Payday lending has surged in popularity since the financial crisis as traditional banks restrict credit to the safest borrowers.
Wonga and other lenders such as CashEuroNet UK LLC offer short-term loans of small amounts. The average is 270 pounds and lenders make much of their income from customers “rolling over” debt for another month, according to the OFT.