MPs in Bradford have given a mixed reaction to Government plans to cap the costs of controversial “payday loans”, with some fearing they could force vulnerable people into the hands of illegal loan sharks.

Chancellor George Osborne yesterday announced it would impose a limit, which would cover fees on the lending as well as interest, to “protect people who take out these loans to make sure they are not being exploited”.

The Government will bring in powers to impose the restriction through an amendment to the Banking Reform Bill, but the level of the cap will be set by the new Financial Conduct Authority (FCA). The move comes after Labour leader Ed Miliband complained earlier this month that payday loans firms such as Wonga were “running riot through our communities”.

But MPs in the district expressed fears over the plans, saying the issue needs to be looked at carefully to make sure people struggling to get credit don’t feel they have to turn to loan sharks.

Shipley Conservative MP Philip Davies said the announcement was ‘well-meaning’ but he had concerns.

“The announcement is one which will remove access to legitimate credit to many people and therefore one which I fear will drive very vulnerable people into the arms of illegal loan sharks, who send people round with baseball bats to collect their money.

“APRs are meaningless for very short term loans – if you were to lend me £20 for a week and I was to repay it a week later and bought you a pint of beer as a thank you, that would equate to an APR of about 4,000 per cent, which goes to show how meaningless these rates are.”

Bradford South Labour MP Gerry Sutcliffe said he wanted to see the detail of what the Government was proposing, but said: “It is a step in the right direction.

“It’s a complex issue. The cap needs to be on the total cost of the loan and any hidden charges, as well as the interest.

“We need to differentiate between good lenders and bad lenders and we also need to make sure we don’t force people into the hands of loan sharks.”

Bradford West Respect MP Mr Galloway said the Government had done an “about turn” over the issue, but it was a “welcome one”.

“George Osborne has suddenly seen the sense of what I and others have been arguing,” he added.

“Indeed I have submitted two very well-supported motions against Wonga and its ilk in the last year.

“Of course these usurious rates of interest need to be capped.

“It’s licensed thievery as it stands, profiting from the poorest and most vulnerable in society.”