THE "great moral force" brought to the debate by the Bishop of Durham, the Rt Revd Justin Welby, forced the Government to back down on its opposition to capping interest on payday loans, the House of Lords heard on Wednesday.

Lord Sassoon, Commercial Secretary to the Treasury, announced at the start of the debate on Wednesday that the Government would amend the Financial Services Bill to give the regulator the power to cap both the total cost and total duration of credit. Speaking in response, the Labour Peer, Lord Davies of Stamford, thanked Bishop Welby for his support. Bishop Welby had added his name to an amendment, tabled by the Labour peer Lord Mitchell, which would gave given the Financial Conduct Authority the power to cap interest rates. It was withdrawn in light of the Government's U-turn.

"It is only because of the determination and initiative of my noble friend and his colleagues, and the great moral force brought to this matter by the Right Reverend Prelate, that, at the last minute, the Government have decided that they have no alternative but to do the right thing for once," he said. "I am so glad that the Right Reverend Prelate is a churchman, and not afraid to use old-fashioned but eternal concepts such as usury."

After welcoming the Government's concession, Bishop Welby repeated his charge that the rates charged by payday loan companies - which can exceed 4000 per cent - were "clearly usurious. . . It used to be said in the old days that you could not take away people's beds and cloaks because they were essential for life - that is the Hebrew scriptures. Today, equivalent things are being taken away as a result of those very high rates of interest. It is a moral case, and it is bad for the clients and bad for all of us in this country when it is permitted to happen."

Lord Sassoon said that he supported the "spirit" of Lord Mitchell's amendment, but warned that it might have "unintended consequences" such as reduced access to credit for the poorest, which could drive them to illegal loan sharks. The Government would introduce a new amendment, "ironing out the potential weaknesses" in Lord Mitchell's, which would "explicitly . . . cover both the total cost and total duration of credit."

Bishop Welby acknowledged concerns about "unintended consequences of a very serious order", but argued that the current market was not working for consumers.

After agreeing to withdraw his amendment, Lord Mitchell said that the winners were "those who live in the hellhole of grinding debt", while the losers were the loan sharks and payday lending companies who had "tried every trick in the book to keep this legislation from being approved".

Last Tuesday, the Office of Fair Trading announced that it had opened formal investigations into several payday lenders over "aggressive debt-collection practices". Its latest report on the sector highlights concerns, including inadequate checks on whether loans are affordable, the proportion of loans not paid on time, and the frequency with which lenders "roll-over" loans.

In August, the Government opposed calls, including those from the Department for Business, Innovation and Skills, to take firmer regulatory action against payday loan companies ( News, 17 August) in favour of working with the industry to produce a code of practice. This was launched on Monday, prompting Citizens Advice to announce a year-long survey asking people to monitor whether lenders are "sticking to their self-regulating charter".

The charity also released figures showing that the percentage of debt casework clients with at least one payday loan has increased from one per cent in 2009/10 to ten per cent this year.