The FCA is under pressure to go further in its proposed clampdown on the payday loans sector after the number of people with short-term debt surged 42 per cent during the first six months of 2014.
New figures released by debt charity StepChange reveal the number of people with payday loan debts rose from 30,762 in the first half of 2013 to 43,716 in the same period this year.
Furthermore, the total payday loan debt handled by the charity increased from £51m to £72m year-on-year.
In a bid to curtail the payday loans sector, the FCA has proposed capping the amount lenders can charge at 100 per cent of the value of the loan. The new rules are due to come into force in January 2015.
In its response to the FCA consultation, published alongside today’s findings, StepChange urges the regulator to consider implementing a stricter cap.
It says: “There is a case for a tougher total cost cap than 100 per cent of the value of the loan, especially in relation to higher value loans.
“The Competition and Markets Authority found that the average initial payday loan taken out is £260, while the average StepChange Debt Charity client with payday loan debt has an income (net) of £1,305.
“This means that someone with just one payday loan debt which reaches the 100 per cent cap would end up owing a substantial part of their income and could easily lead to further borrowing and deeper financial difficulty.”
StepChange chief executive Mike O’Connor says: “High-cost short-term credit is rarely the answer to financial difficulties. While, the FCA’s proposed price cap is a crucial step forward, there is still much work to be done to ensure that payday loans can no longer plunge people into a cycle of unsustainable borrowing and entrenched financial hardship.
“Consumers will continue to need access to short-term credit and FCA action should also stimulate the reform of this market. This needs to include problems in the adjacent markets including overdrafts, logbook loans and home credit where consumers also suffer detriment.”