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Payday loans cause 'debt spiral'

The government says it's about to get tough on payday loans companies, which charge interest rates of up to 4,000%.

This afternoon, an amendment to the Financial Services Bill will be tabled creating powers to cap the cost of borrowing.

The move comes as figures given to The World At One show a dramatic increase in the numbers of people seeking help with handling their payday loans.

Delroy Corinaldi, Head of External Affairs at debt charity StepChange, told the BBC: "The number of people coming to us with payday loans is quite dramatic.

"People are really struggling, and therefore they're turning to other ways of subsidising their daily incomes. They aren't just taking out one loan, they're taking out three, four, five loans.

"We fear that many people will be lulled into taking out more payday loans, and if they don't get the protection they need, their debt spiral will increase."

In response, the Treasury told the BBC: "The government is determined that the incoming Financial Conduct Authority will be able to address the issue of payday lenders with powers that work effectively.

"The amendment that we are tabling to the financial services bill clarifies that the FCA will have the power to protect consumers from unscrupulous payday lenders."