Payday loans cap of 0.8% per day announced by City watchdog

The aim is to curb the outrageous spiralling debt of vulnerable borrowers

Payday lenders will be forced to limit how much they charge under new cost cap published this morning by the Financial Conduct Authority.

The City Watchdog said, from 1 January, interest and fees charged by short-term lenders must not exceed 0.8 per cent per day of the amount borrowed.

On top of that fixed default fees will be capped at £15 and the overall cost of a payday loan should never be more than double the amount borrowed.

The aim is to curb the outrageous spiralling debt of vulnerable borrowers who in the past have seen their loan grow to three or four times the amount they've borrowed once lenders have slapped them with late-payment fees and other penalty charges.

Martin Wheatley, chief executive of the FCA said the cap was not designed to put payday lenders out of business but to ensure that those who used them could afford to repay their debts.

“Our role is to find that balancing point between stopping the excesses which are designed to abuse vulnerable consumers, but still allowing the availability of loans to those who can use them in a mature and responsible way,” he said.

The news comes just a day after the new Wonga chairman was forced to admit that Britain's most-profitable payday lender  - it made around £60million last year - would have to cut profits to rebuilt it's tattered reputation.

“We will become a more customer-focused, and inevitably in the near term, a smaller and less profitable business,” Andy Haste said yesterday.

In an attempt to rebrand the contentious company as “acceptable”, Haste - a former boss of insurers RSA and AXA Sun Life – also plans to scrap the high-cost credit company’s TV puppets, which have been branded irresponsible for trivialising debt.

The new cap on the cost of credit will certainly cut profits, but does it go far enough? No, said StepChange Debt Charity head of policy Peter Tutton.

“Capping the cost of payday loans is not a silver bullet. Fixing the many deep-rooted problems of the payday loan market will require a range of measures and assertive monitoring and enforcement by the FCA,” he said.

Citizens Advice Chief Executive Gillian Guy said: “A payday loan cap is not the final piece of the puzzle; consumers need more choice and access to advice.”

But Russell Hamlin-Boone of the Consumer Finance Association, a payday loan trade body, warned that the proposed cap could cause problems.

“It will reduce choice and competition in the market,” he said. “The cap as it's proposed is going to mean that a lot of people with the poorest credit records will not be able to get loans any more.”

But Martin Wheatley said: “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.”

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map