City regulator announces payday loan charges cap

The Financial Conduct Authority announced that payday loan rates will be capped at 0.8% starting January 2015.

17:21 11 November 2014

The Financial Conduct Authority (FCA) will cap payday loan rates at 0.8per cent of the amount borrowed a day, while default charges will be capped at £15.

The new regulation, which will take effect on January 2015, will mean borrowers will not have to pay back more than twice what they borrowed.

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,"

The £2.8bn industry is expected to be drastically altered with the new regulation. Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said: "We'll inevitably see fewer people getting fewer loans from fewer 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."

Gillian Guy, chief executive of Citizens Advice, said that high street banks should seize the opportunity to meet the demand and offer their own better alternatives to payday loans. Guy added: "The FCA should monitor the cap, including whether it is set at the right level, to make sure it is working for consumers. They must also keep a close eye on whether lenders are sticking to the rules."