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.’
Your personal credit score plays an important part in securing new loans and credit, and can affect your financial life for better or worse. Lenders use the information in your credit file to determine whether you present a high risk of default, and if your credit score is low, you may find it difficult to […]
Credit unions offer a range of financial products including current accounts, savings accounts, and loans, and can be a good alternative to banks and building societies whilst also helping your cash flow. There are credit unions all around the UK, almost 100 of them operating in Scotland. They’re not always widely advertised, however, and although […]
It’s a worrying situation when you realise your outgoings exceed your income, and it can be difficult to prevent debt in this situation, but there are solid steps you can take to get back on track – you just need to act quickly. Increasing your income or reducing the money going out are essentially what […]
If you’ve lost your job, state benefits and tax credits can provide vital financial support to see you through this tough time and help you avoid taking on too much debt while you look for more work. As far as your old employment is concerned, it’s important that you check your final wage slip to […]
If you are a Scottish resident in financial difficulty, you may have entered into a Trust Deed in order to restructure debt repayments to creditors. A Trust Deed is a fixed voluntary agreement made between the debtor and creditor, with the help of a trustee. Debt is broken down into smaller, affordable instalments, typically lasting […]
A Debt Arrangement Scheme (DAS) is a government backed scheme which allows you to repay debt through contractual, monthly instalments without the threat of legal action and incurring penalties or interest. The scheme was established in 2004 for Scottish residents in debt, providing an alternative solution to sequestration, the Scottish equivalent of bankruptcy. A Debt […]