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FCA confirms cost caps on payday lenders

by: Scott Sinclair
  • 11/11/2014
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Limits on the amounts payday lenders can charge customers have been confirmed by the Financial Conduct Authority (FCA).

The cost cap includes a rule stating lenders cannot receive more in fees and interest on a loan than the amount borrowed.

The changes will mean someone taking out a loan for 30 days and repaying on time will not pay more than £24 in fees and charges per £100 borrowed.

FCA chief executive Martin Wheatley said the rules, which will be introduced on 2 January, “strike the right balance” for both firms and consumers.

Following a consultation earlier this year, the price cap structure restricts payday lenders in three ways:

  • Initial cost cap of 0.8% per day – Lowers the cost for most borrowers. For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.
  • Fixed default fees capped at £15 – Protects borrowers struggling to repay. If borrowers do not repay their loans on time, default charges must not exceed £15. Interest on unpaid balances and default charges must not exceed the initial rate. 
  • Total cost cap of 100% – Protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than the amount borrowed.

Wheatley 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.”

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