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FCA: Payday loan restrictions could harm consumers

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The Financial Conduct Authority has signalled it may not use new powers to cap interest rates on payday loans as consumers could be left ”worse off”.

In its behavioural economics report, published last week, the FCA says imposing restrictions on how many payday loans people can take out could hurt people who need emergency cash.

The FCA wil regulate payday lenders from April 2014 when it will take over from the Office of Fair Trading. It will have the power to cap interest and restrict the availability.

But the FCA says: “Many consumers use payday loans because, despite high APRs, that is the only source of credit available to high-risk borrowers in emergencies.

“They might be made worse off by caps on APR or restrictions on how often they can borrow if they reduce availability to some consumers.”

John Charcol senior technical manager Ray Boulger says: “It is a dangerous path to start capping interest rates as where do you draw the line? The interest rates are horrible but for some people payday loans can be a useful alternative to missing a credit card payment or leaving an overdraft unpaid.”

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