The FSA – pointing the way to usury

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As the Guardian notes:

An information site run by the personal finance industry regulator, the Financial Services Authority (FSA), is promoting a sub-prime loan comparison site that quotes interest rates of more than 1,300% APR.

The FSA's site, Moneymadeclear, was set up to provide easy-to-understand and independent information and tools to help consumers learn about financial products.

While the site offers purpose-built tools to help people compare mortgages and savings accounts, the only link for comparison sites on its cards and loans page is to LendersCompared.org.uk, which is paid for by the largest home credit companies in the UK.

Home credit firms usually lend small amounts of up to £1,000 which are repaid within a few months, with payments collected from the borrower's doorstep. Loans are typically targeted at borrowers with low incomes and poor credit records who would represent too high a risk for mainstream lenders. As a result interest rates are high.

The cheapest rate Guardian Money could find quoted on the LendersCompared site was in excess of 120% APR, while the most expensive – a £100 home collected loan from CLC Finance repaid in 15 instalments of £10 a week – has an APR of 1,303.2% APR.

Home lenders argue they are justified in charging high rates of interest to compensate for the extra risk of borrowers defaulting on payments, and some borrowers may have no choice but to borrow from them. But those who can shop around can find much better rates elsewhere.

We compared the cost of a £1,000 loan on LendersCompared and onmoneysupermarket.com (stating we were tenants in a furnished property living in Balham). The cheapest loan that LendersCompared could produce was from Chase Finance, which cost £1,500 to repay over one year, or 122% APR. In contrast moneysupermarket.com's cheapest quote was from Sainsbury's Bank, which cost £1,077 to repay, or 14.9% APR.

Richard Murphy, adviser to the Tax Justice Network and the TUC on taxation and economic issues, said he was appalled the FSA had included a link for a home credit loan comparison site on its own website: "They should be directing people towards other sources of loans, such as credit unions, which are much cheaper."

What is the FSA trying to do? Encourage abusive banking? That’s what it seems like to me.

They have a defence – it’s in the article. And I think it’s hollow.

They need to reform this, like much else, now.