View more on these topics

FCA caps payday loans at 0.8% per day

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.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Good job FCA!!

    Will be fun to see all the immoral, low life companies like Quick Quid, Wonga and the rest of the payday lenders disappear into a deep,dark hole in the ground.

    It’s a shame that Wonga, who allegedly made large donations to the Tory party, were allowed prime ITV X-Factor advertising (their target customers) because perhaps there would have been far less exploitation of the weak and vulnerable in society.

    Someone should also investigate Quick Quid, another rip off company pretending to be everyone’s best friends and helping hand who have also secured prime TV advertising…………………

  2. Seems sensible to me (I suggested a cap of 1% per day which various people seem to think would make payday lending unviable), even if it does somewhat fly in the face of Rory Percival’s claim that the FCA “is not a price regulator”. If this isn’t price regulation, I’m hard pressed to think what is.

  3. it’s a start, but why isn’t more being done to promote credit unions? They have a statutory maximum annual interest rate of 30% – and do far more than just lend money.

    Maybe it’s the ‘mutuality’ and ethical dimension that the FCA can’t get their head around

  4. Bank base rate 0.5% per year.
    Shark loan rate 0.8% per day.
    The FCA need a maths lesson I think.

  5. I’m mindful of sounding patronising but I agree with Smithy and Julian in that it’s a start – but specifically it protects people from themselves.

    I also heard today from a mortgage adviser that there are now mortgage lenders who will decline a mortgage if you’ve had a payday loan in the last 12 months – something I suspect many people are unaware of.

    The absolute cost cap (i.e. 100%) is very interesting in that it should protect those who have a tendancy to roll over (and the debt then run away with them).

    Whilst I’m against prohibitive caps and control etc in efficient markets, I do feel that people who turn to such debt providers require some form of regulatory protection.

  6. What “Right” do the FCA have to enforce this ? Yes I know they can do what they want – after all they have ridden a coach and horses thru existing contracts via RDR but this does not make this “Right”

    I totally agree that people are being ripped off with many payday loans but then again many Platforms charge far too much, many fund managers the same and certainly many advisers charge far more than they are worth. Do we now live in a world where the FCA think that they are free to set maximum charges for all ?

  7. This feels like a development which might come back to haunt the FCA, in particular if the OFT grab this mantle in their review of banks, the issue of whether an individual should pay back no more than double their original capital becomes problematic, particularly with credit cards !

    The FCA are not stupid so i wonder how they will differentiate.

    Then come mortgages, car loans, student loans etc etc

  8. Low-income consumers often get small personal loans when they run out of cash before the next wage day. The interest rates charged on these unsecured payday loans http://sterlingstore.co.uk/ to people with bad credit scores are usually higher than on loans to people whose higher incomes and better credit histories make them less of a risk. Even credit unions typically charge more than 5% APR. After all they have to pay interest to savers and cover defaults and costs. If they’re pushed out of business, desperate borrowers will be pushed to worse – loan sharks.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com