FCA announce payday loan charges cap
A cap on the amount that payday lenders can charge their customers has been announced by the City regulator.
Payday loan rates will be capped at 0.8% of the amount borrowed per day, and in total, no one will have to pay back more than twice what they borrowed. There will also be a £15 cap on default charges.
These restrictions will start from January 2015.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said the £2.8bn industry was expected to shrink as a consequence of the cap, which could make people vulnerable to loan sharks.
He said, “We’ll inevitably see fewer people getting fewer loans from few lenders. 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.”
FCA chief executive Martin Wheatley said that the regulator’s research showed that 70,000 people who were able to secure a payday loan now would not be able to do so under the new, stricter rules. They represent about 7% of borrowers.
However, he disputed the industry’s view that many of these people would be driven to using illegal loan sharks. He added that he wanted to see a responsible, mature industry for short-term loans.
Gillian Guy, chief executive of Citizens Advice, said: “People who are in a position to borrow need a responsible short-term credit market. A vital part of this is greater choice. High street banks should seize the opportunity to meet demand and offer their customers a better alternative to payday loans.”