A Labour-led government would cap the amount of interest that credit card borrowers could be forced to repay, shadow chancellor John McDonnell revealed at the Labour party conference on Monday 25 September
Under the proposed law, nobody would pay more in interest than the principal borrowed on their credit card.
This would bring credit cards in line with payday loans, to which the same cap has applied since 2015.
Speaking at the conference, McDonnell said: “Under Labour pressure, the government was forced to cap interest payments on payday loans. But more than three million credit card holders are trapped by their debt. They’ve paid more in interest charges and fees than they originally borrowed. The Financial Conduct Authority (FCA) has argued for action to be taken on credit card debt as on pay day loans.
“I am calling upon the government to act now and apply the same rules on payday loans to credit card debt. It means that no-one will ever pay more in interest than their original loan. If the Tories refuse to act, I can announce today that the next Labour government will amend the law.”
Need for balance
Stephen Jones, chief executive officer of UK Finance, the trade body that includes the former UK Cards Association, warned that it was vital a balance was struck between helping customers to borrow with the right product while ensuring longer term affordability.
He said: “The FCA’s extensive credit card market study looked very closely at the issue of persistent debt. It considered whether a cap on interest charges should be introduced, but concluded that there were preferable alternatives which the industry is supportive of and will implement when the current consultation is concluded later this year.
“The industry is working closely with the FCA to ensure that customers continue to receive access to the credit they need and, as part of the industry’s commitment to ensuring the best possible outcome for all consumers, UK Finance has formed a Consumer Credit Taskforce to look at how it can support customers repay, if their financial circumstances change.
While Jones said he welcomed suggestions on how to improve the market, he added it was vital to fully consider the options for reform in order to avoid unintended consequences. He said: “the last thing the industry wants, is to see those who are most vulnerable, being pushed towards the hands of unscrupulous and unregulated lenders.”