Simon Read: We need a cap on credit to curb the outrageous charges

Some 25 payday lenders have closed for business since the Office of Fair Trading launched an investigation into the sector this year.

Three were shut down by the watchdog while the rest decided to close their doors, perhaps because their business methods wouldn't stand up to much scrutiny.

New rules published this week (see p59) should encourage rogue firms at the fringes to realise that their unscrupulous activities will no longer be tolerated. Crucially, the Financial Conduct Authority (FCA) has signalled it will be happy to use the stronger enforcement powers it already has as the City regulator, and the Consumer Minister Jo Swinson told me on Thursday that the Government is ready to step in with stronger powers if needed.

But these words must be backed up by firm action from the City watchdog when it takes responsibility for consumer credit next year. Any fines imposed must be substantial and enforcement action must be swift.

The FCA has an opportunity to mark a line in the sand and show rogue lenders that we won't tolerate them. There is a place for responsible credit providers, which ensure borrowers can repay loans by introducing proper affordability checks and don't encourage them to rollover loans and rack up debt. There is no place for the firms which target vulnerable people whose pockets – and bank accounts – can be picked for easy profits.

Ultimately we need a cap on the total cost of credit to stop payday lenders profiting from the vulnerable. The FCA hasn't ruled out a cap, but it should put that at the centre of its future regulatory plans.

s.read@independent.co.uk Twitter: @simonnread