New rules capping the amount which payday lenders can charge customers have been announced by the Financial Conduct Authority (FCA) and will come into force on 02 January 2015. The measures will see:
- An initial cap of 0.8% a day in interest charges. By way of example, a customer who takes out a loan of £100 over 30 days, and settles the debt in time, will pay no more than £24 in interest.
- A cap of £15 on the one-off default fee. Customers who do not settle their debt on time can be charged a maximum of £15, plus no more than 0.8% a day in outstanding interest.
- A total cost cap of 100%. If a customer defaults, the interest on the debt may build up, but a customer will never have to repay more than double the amount borrowed.
Whilst the FCA want to strike the right balance for payday lending firms and consumers, the FCA predict that the industry will lose 7% of the total market, amounting to 70,000 customers as a result of the changes.
Since 1 April 2014 when the FCA first took over regulating the consumer credit industry, the number of loans and the amount borrowed has decreased by 35%. Due to the changes the future of the industry looks uncertain, with FCA modelling suggesting that only a few major players will remain within a year.
The price cap will be reviewed in 2017.
For the official press release on this topic please visit the FCA website.