The Financial Conduct Authority has clamped down on Britain’s payday lenders with a series of measures designed to put an end to ‘spiralling payday debts.’
The UK regulator has introduced a new price cap plan which includes both interest and fees. The new measures will come into force in January.
The new rules state:
- A cap of 0.8% in interest charges which means anyone taking out a £100 loan for 30 days will pay no more than £24 in interest
- A £15 cap on the one-off default fee for borrowers who fail to pay back on time
- A total cost cap of 100%. Borrowers will never have to pay back more than twice what they have borrowed
FCA chief executive Martin Wheatley said: “I am confident 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 represent substantial protections.”
But Labour MP Stella Creasey who has led the campaign against payday lenders was critical of the measures. She said: “Today’s news will be welcomed as an early Christmas present for Britain’s legal loan sharks. The cap is just £1 lower than their current charges. This is an industry where some firms are making nearly £¾ million a week from British customers – such a high cap will do little to tackle these rip off charges.
“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on these companies.”
Russell Hamblin Boone, chief executive of the Consumer Finance Association which speaks for the majority of Britain’s payday lenders, said the industry had already put in place higher standards of conduct.
“For example, we’ve restricted extending or rolling over loans and we’ve got tighter checks on people before we approve loans,” he said.
“Inevitably we’ll see fewer people getting fewer loans from fewer lenders. The fact is, 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 so they’re not going to illegal lenders.”
There have been concerns that if the new measures make it more difficult for payday lenders to make loans to people then borrowers could become more vulnerable to unlicensed loan sharks. FCA research has shown that 70,000 people able to get a loan now will not be able to do so under the new rules.