A SENIOR councillor at Portsmouth City Council has said the new law to cap payday loans needs to strike the right balance.
The government yesterday announced it would introduce a new law as part of the Banking Reform Bill that is currently going through parliament.
The law will see the cost of paydays loans capped at an interest rate that is yet to be decided.
But councillor Hugh Mason has said that number needs to strike a balance between payday loans and the credit union.
The deputy leader of Portsmouth City Council said: ‘I think the new law will be very good, especially for Portsmouth which sees a large number of people struggling with loans. And these loans have very high interest rates, causing people to come to their councillors needing advice.
‘But for this law to work, the government needs to find the right balance.
‘They need to get the interest rate at a level where the payday loan companies can offer it to people without them taking a risk so I think it will be around four per cent per month.’
As previously reported in The News, Portsmouth has a high number of people using payday loans and loan sharks.
Cllr Mason added: ‘For me, there are two main reasons why people are tempted to use these services.
‘The first is that a number of people are moving in and out of the city, including relatives. People cannot rely on their families as much to lend them money in times of need.
‘The other main reason is the low wage that residents living in Portsmouth have to live off. If you look at the figures for people living in the city, I think it would shock some people.
‘The people on the higher wage tend to live outside the city so residents in the city are forced into payday loans.’
The new law should be welcomed by the city council after it enlisted the help of Birmingham City Council to clamp down on loan sharks.
As reported, the Illegal Money Lending Team will be working in the city until 2015 and it is hoped it will find out where illegal money lending exists and prosecute those doing the work.
It is also hoped it will help victims come forward and feel more confident that action is being taken.
A report by Alan Cufley, Portsmouth City Council’s head of corporate assets, business and standards, said illegal lending is happening across all sectors of the community.
Along with the new payday loans law, the government has also created a new regulator, the Financial Conduct Authority. It has more powers to protect consumers in financial services and to also cap payday loans.