Payday lenders will have a levy imposed on their profits which would see millions of pounds diverted to credit unions, under plans announced by the Labour party.
Should it win the next general election in 2015, Ed Miliband said his party would cap the cost of credit, halt the spread of payday lenders on high streets and force them to fund credit unions, which Labour believes offer a real alternative for people in need.
Labour also wants to capitalise on the cost of living crisis, which was further amplified with news yesterday that wages are drastically failing to keep up with inflation. The Office for National Statistic said that wages grew at just 0.7% in the year to August, while inflation is running at 2.7%.
Miliband said: "We must protect the most vulnerable people in our society from the worst of exploitation by payday lenders. And it is right that the companies that benefit from people's financial plight, accept their responsibilities to help ensure affordable credit is available."
Stella Creasy, MP for Walthamstow and a vocal opponent of payday lenders, added: "Whether helping to increase the capital credit unions have to enable them to lend more, kicking these companies out of their football grounds and shopping centres, or supporting debt advice to those caught in spiral of debt by the practices of these firms, these are the people dealing first hand with this government's failure to learn from other countries in capping the cost of credit.
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"We are determined to see a cap introduced in the UK so that we can see an end to this legal loan sharking and give British consumers the protection they deserve."
Payday loans firms have been heavily criticised for targeting vulnerable people who can ill afford to take on extra borrowing at sky high rates of interest. Some lenders have also been slammed for charging excessive late payment fees and sky-high interest rates of 4,000% or more, while some have been found to have wrongly taken money from non-customers' accounts.
Payday lenders are due to be regulated by the Financial Conduct Authority from April 2014, taking over from the Office of Fair Trading (OFT). The OFT was accused in May 2013 of being "ineffective" in regulating the market and being "timid rather than tough", by a committee of MPs.
The Public Accounts Committee (PAC), led by chairwoman Margaret Hodge, strongly criticised the Office of Fair Trading for failing "to proactively identify risks of malpractice, relying instead on complaints from consumers and information from other third parties."