The UK’s financial watchdog is clamping down on payday loans, with new rules to ensure that borrowers are never forced to repay more than twice the sum of their original loan.
The Financial Conduct Authority said that interest and fees will be capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan will be limited to 100% of the original sum. Default fees will be capped at £15 in an effort to protect people struggling to repay their debts.
The changes, which come into force on 2 January, mean that someone borrowing £100 for 30 days will not pay more than £24 in fees and charges if they repay the loan on time.
But consumer experts have warned that the FCA plans – unchanged from an original draft published in July – do not go far enough in protecting vulnerable borrowers.
The FCA has previously said it does not want to drive payday lenders out of business. The regulator estimates that the industry will lose 70,000 borrowers, 7% of the total market, as a result of these measures.
Martin Wheatley, the FCA chief executive, said: “I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers. 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.”
