New cap on payday loan rates
14 Nov 2014
A new cap on payday loan rates will be introduced with effect from January 2015, the Financial Conduct Authority (FCA) has confirmed.
The new rules will introduce an initial cap of 0.8% a day in interest charges, together with a total cost cap of 100%, meaning that no borrower will have to pay back more than twice the amount they have borrowed. One-off default charges will also be capped at £15.
Commenting on the measures, FCA chief executive Martin Wheatley said, ‘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’.
However, some have expressed concern that the new rules will lead to an inevitable shrinking of the payday loan market, potentially leaving those consumers who are unable to secure a payday loan more vulnerable to loan sharks.
Citizens Advice has called on the FCA to monitor the cap over time, to ensure that the new rules are working in practise. It has also urged High Street banks to consider offering customers a ‘better alternative’ to short-term credit than the payday loan.