New Rules Will Limit Total Repayments To Twice Amount Borrowed

The Financial Conduct Authority (FCA) has confirmed its price cap rules for payday lenders, which will take effect at the beginning of next year.

From January 2nd 2015, interest and fees on high-cost, short-term credit loans must not exceed 0.8 per cent per day of the amount borrowed. Fixed default fees have been capped at £15, while the total cost of a loan - including fees and interest - has been capped at 100 per cent.

This means that borrowers will never have to pay back more than twice the amount they borrowed, and sets the fee cap for a 30-day loan at £24 per £100 borrowed.

The FCA says the new rules, which remain unchanged following a period of public consultation earlier this year, are intended to strike a balance between the need for a viable high-cost credit market and the need to protect borrowers.

"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts," said FCA chief executive Martin Wheatley. "For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections."

Expert Opinion

It is welcome to see the FCA issuing this guidance which will not only provide some protection to consumers, but also ensure that responsible activity in this market is encouraged and promoted. <br/> <br/>"Lenders have a duty to meet their compliance in this area we would urge any organisations with concerns regarding the changes to seek legal or compliance advice to ensure they meet all of their responsibilities."