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Payday Loan Charges to be Capped

A cap on the amounts payday lenders can charge their customers has been announced by the city regulator the Financial Conduct Authority (FCA).

The FCA has stated payday loan rates will be capped at 0.8% of the amount borrowed a day and in total, no one will have to pay back more than twice what they borrowed, plus there will be a £15.00 cap on default charges.

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New Restrictions Start January 2015

The loan restrictions will start from January 2015. The FCA has said that for people who struggle to repay, they believe the new rules will put an end to spiralling payday debts. They also went on to say that for most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.

The confirmed measures will see:

  • An initial cap of 0.8% a day in interest charges. Someone who takes out a loan of £100.00 over 30 days, and pays back on time, will therefore pay no more than £24.00 in interest.
  • A cap of £15.00 on the one-off default fee. Borrowers who fail to pay back on time can be charged a maximum of £15.00, plus a maximum of 0.8% a day in interest and fees.
  • Total cost cap of 100%. If a borrower defaults, the interest on the debt will build up, but he or she will never have to pay back more than twice the amount they borrowed. The FCA said that the regulator’s research had shown 70,000 people who were able to secure a payday loan now would not be able to do so under the new, stricter rules. They represent about 7% of current borrowers.

Avoid Having to Turn to Payday Lenders

If you are struggling to pay your debts then it would be sensible for you to seek debt advice, which can consider all of your options, so you may be able to avoid turning to any payday lenders.