FCA Payday Loan Cap Guide

In January 2015, the Financial Conduct Authority (FCA) have said that payday loan rates will now be capped at 0.8% per day of the total amount borrowed. There are other new rules coming in too.

Changes to the way payday loan companies charge their customers have been introduced in January 2015. These follow concerns over the amount that borrowers have to pay back on payday loans and the fact that if payday loans are not repaid the following payday, the cost for borrowers can spiral out of control.

What's New?

The Financial Conduct Authority (FCA) have said that payday loan rates will now be capped at 0.8% per day of the total amount borrowed.

If a customer defaults on repayments the lender will not be able to charge a penalty fee of more than £15 plus a maximum of 0.8% a day in interest and fees.

Finally, the FCA have stressed that no borrower should in effect pay back more than twice the amount they borrowed.

In addition, lenders working in the payday loan industry have been urged to lend responsibly and not keep extending loans to people, rolling over loans and should carry out tighter checks on loan applications.

Any Drawbacks or Concerns?

Commentators, whilst pleased to see the industry being better regulated, are however concerned that if people cannot get easy payday loans they may turn to  loan sharks. Many argue that the need to get cash quickly will continue and if people see no alternative they will turn to more dubious lenders who are not regulated at all.

It does appear that while there’s a need for short term credit there is a need to ensure that this industry is well regulated and also that lenders are responsible in the way they lend. The Citizens Advice Bureau have lent their voice to the view that high street banks should now enter the short term lending market and offer borrowers a credible alternative to payday loans.

In addition there is also pressure on the FCA to ensure that new practises are closely monitored and that some of the old, unacceptable practices that gave payday loans such notoriety are stamped out.

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