Chancellor George Osborne has toughened up the regulation of payday lenders by handing the FCA new powers to cap overall costs.
The FCA will regulate the sector from next April with powers to cap interest rates as well as curbing advertising and debt collection techniques.
Osborne has today decided to go further and allow the regulator to put a cap on how much customers pay overall, including arrangement fees and penalty fees.
The Government will amend the Banking Reform Bill and the level of the cap will be decided with the FCA.
Speaking to the BBC this morning, Osborne said: “It is not just a cap on the rate of interest I think it is important we understand that.
“We have got to look at all the other things that go into a loan, the arrangement fees the penalty fees if you fail to pay the loan, the rollovers the continuous payment authority – that the money coming out of people’s accounts without people knowing.”
Liberal Democrat peer Lord John Sharkey has tabled an amendment to the Banking Reform Bill to create a maximum £300 payday loan.
Labour leader Ed Miliband has called for a tax on payday lenders and a ban on advertising during children’s programmes.
Which? executive director Richard Lloyd says: “We’re pleased the Government is committed to taking tougher action on payday loans by capping the sky-high fees and charges that drag people down in a spiral of debt.
“This will need to be part of a wider clean up of the credit market. The Government and the FCA must clamp down on irresponsible lending and excessive fees across the board, whoever the lender.”