The FCA has announced plans to cap the fees charged by payday lenders in a move expected to cost the industry £420m a year in revenue.
The new rules, due to come into force in January 2015, mean payday lenders will never be allowed to charge more than 100 per cent of the value of the loan, while interest and fees will be capped at 0.8 per cent per day of the amount borrowed.
The regulator is also threatening to introduce tougher regulations for consumer credit firms if they fail to improve data-sharing for affordability tests.
FCA chief executive Martin Wheatley says: “For the many people that struggle to repay their payday loans every year this is a giant leap forward. From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20. That’s a significant saving.
“For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstance.
“There have been many strong and competing views to take into account, but I am confident we have found the right balance.
“Alongside our other new rules for payday firms – affordability tests and limits on rollovers and continuous payment authorities – the cap will help drive up standards in a sector that badly needs to improve how it treats its customers.”
The FCA’s prediction of a £420m hit to the payday lender sector is based on research which indicates most loans currently pocket lenders between 1 and 2 per cent a day.
The proposals will apply to new loans and loans rolled over from January 2015. The consultation closes on 1 September.
Last week the Financial Ombudsman warned of a spike in complaints over payday lending in the last two years.