FCA: Payday Loan Interest Charges to be Capped
July 18, 2014
Good news for those looking to borrow money; the cost of taking out a payday loan will soon be dropping after the financial watchdog announced a cap will be introduced.
From January borrowers will not have to pay more than 0.8 per cent per day of the amount borrowed, including interest and fees – even if the loan is rolled over.
The cost, through interest and charges, of a payday loan will never be allowed to exceed the loan sum, so no borrower will have to pay back more than twice what they borrowed.
Payday loan lenders such as Wonga and Cash Lady have been criticised for their escalating and ‘excessive’ interest rates in recent years.
Consumer groups welcomed the news, although some warned even tighter regulation is needed.
Which? executive director, Richard Lloyd, said: ‘It’s good to see the regulator tackling the eye-watering cost of payday loans, especially the excessive default charges that sting struggling borrowers and lead them into spiralling debt.
‘Payday lenders have been running wild for too long and the FCA must keep them on a tight leash to protect consumers. The cap on the cost of loans should be kept under review and tightened up further if it doesn’t work as intended.’
Martin Lewis of MoneySavingExpert.com, added: ‘I hope this is the end of the high cost credit industry taking advantage of some of the nation’s poorest and financially illiterate people.
‘It’s now crucial we focus on financial education so that people that need access to quick cash aren’t lured in by illegal loan sharks or any other forms of costly credit.’
FCA chief executive Martin Wheatley said of the cap: ‘There have been many strong and competing views to take into account, but I am confident we have found the right balance.
‘Alongside our other new rules for payday firms – affordability tests and limits on rollovers and continuous payment authorities – the cap will help drive up standards in a sector that badly needs to improve how it treats its customers.’
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