The FCA is capping interest rates on payday loans at 0.8 per cent per day and says no one will repay more than double thier initial loan.
From 2 January the FCA will cap the total cost of repayment at 100 per cent so the cost of credit does not escalate dramatically. It will also cap late payment charges at £15.
The regulator says someone taking out a loan for 30 days and repaying on time will not pay more than £24 in fees and charges per £100 borrowed.
It estimates the price cap will cut the number of payday borrowers by 7 per cent – equating to 70,000 people – down from its July estimate of 11 per cent.
FCA chief executive Martin Wheatley says: “I am confident the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
“For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”
But Labour MP Stella Creasy, who has led the campaign against payday lenders, says: “Today’s news will be welcomed as an early Christmas present for Britain’s legal loansharks. This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers- such a high cap will do little to tackle these rip off charges.
“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on these companies. Borrowers in countries like Japan, Australia, Canada and parts of America all have better protection from being preyed on by these companies, showing what can be done to end legal loan sharking.
“This year debt charities and the financial watchdog have reported rises in cases involving payday loans causing problems for consumers, showing just how toxic this industry is for many. Today’s announcement means yet again these sharks have slipped through the net.”