Payday loan charges cap announced by FCA

From BBC News:

A cap on the amount that payday lenders can charge their customers has been announced by the Financial Conduct Authority.

Payday loan rates will be capped at 0.8% per day of the amount borrowed, said the Financial Conduct Authority (FCA).

In total, no one will have to pay back more than twice what they borrowed, and there will be a £15 cap on default charges.

The loan restrictions will start from January, the regulator said.

“For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts,” said FCA chief executive Martin Wheatley.

FCA’s Martin Wheatley: It “may be the case” there will be no High Street payday lenders in a year’s time

“For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections,” he added.

The price cap plan – which includes both interest and fees – remains unchanged from proposals the regulator published in July.

‘Tighter checks’

The confirmed measures will see:

  • Initial cap of 0.8% a day in interest charges. Someone who takes out a loan of £100 over 30 days, and pays back on time, will therefore pay no more than £24 in interest
  • A cap of £15 on the one-off default fee. Borrowers who fail to pay back on time can be charged a maximum of £15, plus a maximum of 0.8% a day in interest and fees
  • Total cost cap of 100%. If a borrower defaults, the interest on the debt will build up, but he or she will never have to pay back more than twice the amount they borrowed

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said the payday loans industry had already put in place higher standards of conduct.

“We’ve restricted, for example, extending loans, rolling over loans, [and] we’ve got tighter checks on people before we approve loans,” he told BBC Radio Four’s Today programme.

“This [cap], if you like, is the cherry on a rather heavily-iced cake,” he said.

The £2.8bn industry was expected to shrink as a consequence of the cap, which could make people vulnerable to loan sharks, he added.

“We’ll inevitably see fewer people getting fewer loans from fewer lenders,” Mr Hamblin-Boone said. “The fact is, the demand is not going to go away. What we need to do is make sure we have an alternative, and that we’re catching people, and that they’re not going to illegal lenders.”

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