11th November 2014
The City regulator has announced the cap on the amount payday lenders can charge borrowers from January.
Interest rates will be capped at 0.8% of the amount borrowed per day, according to the Financial Conduct Authority (FCA).
Nobody will have to pay back more than double what they borrowed, and there will be a £15 limit on default charges.
The FCA said someone taking out a loan for 30 days, and repaying on time, would not pay more than £24 in fees and interest per £100 borrowed.
Martin Wheatley, the FCA’s chief executive officer, said: “I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
“For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”
The news was welcomed by consumer groups.
Mike O’Connor, Chief Executive of StepChange Debt Charity, said:“The payday lending industry has been beset by problems from the outset, irresponsible lending, debt inflation, aggressive collection practices and multiple loans chief among those problems. Ensuring that the reforms announced today are effective will require careful monitoring and rigorous enforcement by the FCA.
“These rules address problems associated with the supply of payday loans, but we also need to address the demand for such harmful financial products. We see every day how payday loans have become the last resort for the financially desperate. Credit is rarely the answer to financial problems. We need better options for those struggling with the burden of debt – this is now the challenge for policy makers, creditors and the voluntary sector.”
Richard Lloyd, executive director of Which?, said: “Today the regulator offers hope for millions of borrowers stuck in a cycle of debt, by confirming their plans to rein in the cost of payday loans and crackdown on excessive default charges.
“In the meantime the FCA must keep the cap on the cost under review and tightened up further if it doesn’t work as intended.”