Companies that provide expensive, short-term loans to desperate borrowers face tougher regulation by the government.
Pressure over the activities of companies providing payday loans led the prime minister's office to say on Wednesday that a code of practice to protect vulnerable borrowers could be introduced. David Cameron's spokesman also said that a cap on the often extortionate interest rates had not been ruled out, but indicated that a voluntary code of practice was preferred.
Payday loans are small, unsecured loans to tide people over until their next pay packet. Campaigners argue that their high cost means poor borrowers can be sucked into a cycle of debt.
The prime minister's spokesman said: "We know there are concerns about these companies and the way they operate. We want to ensure that vulnerable people are properly protected and are working with the industry and consumer organisations to ensure that people have the protections they need.''
Asked if he would consider an interest rate cap, which some campaigners want, he replied: "That is not a new issue. It has been looked at in the past. Clearly it is an issue that we can look at. The approach at the moment is to consult with consumer organisations and the industry and look at whether there is a way we can protect vulnerable people."
The government had to be careful to ensure that it did not damage vulnerable people's access to credit, which might drive them to even less scrupulous lenders, he said.
He said the Department for Work and Pensions was looking at how it could do more to help credit unions, as an alternative way of helping people access credit. Critics claim the DWP has reduced funding of such groups.
Ed Davey, the business minister responsible for consumer finance, has been reluctant to back a cap on interest rates, but there is growing ministerial concern at the way the industry is growing and the impact of the economic slowdown forcing more people into financial difficulties.
The government has been resisting demands for legislation, particularly from Labour MP Stella Creasy, for months.
A poll conducted by R3 , which represents "professionals working with financially troubled individuals and businesses", found that 60% of 2,000 people surveyed were worried about debt, and 45% struggled to make their money last until payday. The latter figure rises to 62% for the 24-44 age group.
R3 said the poll revealed money worries at the highest level it had ever recorded. One in six surveyed were "zombie debtors", who are only able to pay interest.
Creasy said: "This isn't broken Britain, but broke Britain " and it is being bled dry by the legal loan shark industry and their interest rates of 1,700% or more. R3 highlight how in the next six months alone, a whopping 3.5 million Britons expect to take out a payday loan. Sixty-seven per cent say they are unable to get credit anywhere else."
The research showed that 32% of those who took out a payday loan had to get another one to pay it off.
Creasy said the government should legislate before Christmas. "We know that capping would make a massive difference to those people. I don't see why the government doesn't get on and do it now."
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