Payday loan charges cap comes into effect
Under new rules payday loan rates will be capped at 0.8% per day of the amount borrowed; and no-one will have to pay back more than twice the amount they borrowed.
Christopher Woolard, of the Financial Conduct Authority, said the regulator had taken action because it was clear that payday loans had been pushing some people into unmanageable debt.
“For those people taking out payday loans, they should be able to borrow more cheaply from today, but also we make sure that people who should not be taking out those loans don’t actually get them,” he said.
The changes mean that if a borrower defaults, the interest on the debt will still build up, but he or she will never have to pay back interest of more than 100% of the amount borrowed.
There is also a £15 cap on a one-off default fee.
Russell Hamblin-Boone, of the Consumer Finance Association, a trade body for payday lenders, said “there will be fewer people getting loans from fewer lenders and the loans they get will no longer be the single payment loans for less than 30 days,”.
Research carried out by the FCA suggests that 70,000 people who were able to secure a payday loan under the previous regulations would be unable to do so under the new, stricter rules.
They represent about 7% of current borrowers.