The Labour Party has pledged to bring a legislation which will restrict the interest amount which could be charged on debts due to credit card use. If this is implemented, no person will pay more interest than the actually borrowed sum. John McDonnell, the shadow chancellor, justified the promise by saying that approximately three million card users are virtually trapped by debt due to their use of credit cards. The planned change will be unveiled at the upcoming Brighton Labour conference.
The FCA asks
According to Labour, the proposed changes will function in a similar fashion as the caps imposed on payday loans. The latter law came into existence in 2015. New measures have been asked for by the Financial Conduct Authority to assist people who are locked in a “persistent debt”. These debts are often due to credit card usage. The persistent debt has been defined by the Financial Conduct Authority as paying more money in charges and interest compared to what they have repaid of the amount actually borrowed over the period of 18 months.
As per the FCA, about three million individuals can be regarded as being trapped in the persistent debt. According to Labour, the proposed “total cost cap” will assist to manage the ever-present debt spiral. It claims that the increasing consumer debt is quickly becoming a tangible threat to the British economy.
Conservatives asked to rectify
It is expected that McDonnell will say that the FCA has asked for due action to be taken on debts due to credit cards, similar to what was taken before on the payday loans. He is expected to ask the Conservative Government to apply the payday loans on credit card debt. The result is that no person will be forced to pay a sum of money in interest compared to the amount of the original loan. He warned that if the Conservatives did not bother to do anything on this matter, then the law will be amended by the subsequent Labour Government.
The Labour move has the cautious support of the UK Finance, the umbrella organization representing the British banking and financial industry. It said that it totally supports responsible lending. UK Finance also said that the consumer credit plays an important part in UK's economic growth. It said that the industry has no intention of pushing vulnerable consumers to the clutches of unregulated and unscrupulous lenders.