Government To Introduce Cap On Payday Loans

FCA To Be Given Powers To Impose New Measure

26.11.2013

The Financial Conduct Authority (FCA) is to be given responsibility to introduce and impose a cap on the cost of payday loans, the government has confirmed.

Set to be established through amendments to the Banking Reform Bill, the move has been taken following growing evidence in support of a cap and emerging lessons from countries including Australia where a cap on costs has been introduced.

The government has discussed the move with the FCA and has asked the regulatory body to use its existing planned work to report on the proposed approach. Payday lenders are on notice for such changes after the FCA confirmed plans to introduce new rules next year.

George Osborne, the Chancellor of the Exchequer, said: “We’re going to have a cap on the total cost of credit – we’re looking at the whole package, not just the interest fee, but also the arrangement fees as well as the penalty fees.

“This is all about having a banking system that works for hardworking people and making sure some of the absolutely outrageous fees and unacceptable practices are dealt with.”

The move has come as the FCA has also launched a thematic review into the operations of price comparison websites.

Expert Opinion
This announcement is a clear decision by the government and FCA to act in this area and does not come as too much of a surprise, considering that payday lenders were already told of plans to introduce new rules in the near future.

"It will be vital for payday lenders to ensure they are fully aware of changes in relation into regulations, so they can guarantee they are meeting all of their responsibilities."
Sarah Wallace, Partner