Interest rates on pay day loans to be capped at 0.8% a day
Under the new rules the total cost of borrowing can be no more than 100% of the loan, or twice the amount that was originally borrowed
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Your support makes all the difference.The City Watchdog has this morning confirmed that a cap on payday lender charges will come into effect from January.
Interest rates will be capped at 0.8 per cent a day of the amount borrowed, while default fees will be capped at £15.
Under the new rules the total cost of borrowing can be no more than 100 per cent of the loan, or twice the amount that was originally borrowed.
"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts," said Martin Wheatley, chief executive of the Financial Conduct Authority.
"For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections."
The price cap plan - which includes both interest and fees - is unchanged from proposals the regulator published in July.
The FCA said someone taking out a loan for 30 days, and repaying on time, would not pay more than £24 in fees and interest per £100 borrowed.
In July, the FCA estimated that the effect of the price cap would be that 11 per cent of current borrowers would no longer have access to payday loans after 2 January 2015.
The move was welcomed by debt charities and consumer groups.
Which? executive director, Richard Lloyd, said: “Today the regulator offers hope for millions of borrowers stuck in a cycle of debt, by confirming their plans to rein in the cost of payday loans and crackdown on excessive default charges.
“In the meantime the FCA must keep the cap on the cost under review and tightened up further if it doesn’t work as intended.”
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline,said; “We hope that these measures will bring an end to the inappropriate lending that we have seen from this industry. However, the FCA will need to be vigilant to ensure that lenders do not simply change their business models to try to evade the rules.
“Calls to National Debtline about payday loans have actually declined slightly from their peak in 2013, but we are still seeing around one in 10 calls relating to this kind of borrowing.
The price cap will be reviewed in 2017.
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