The Financial Conduct Authority has proposed putting severe restrictions on the amount of interest that can be charged by payday lenders.
In a bid to ease concerns about high interest rates and excessive total cost of credit, the city regulator has suggested that loan rates are capped at 0.8 per cent per day of the borrowed amount, and that the borrower should never pay back more than twice the amount they borrowed in the first place.
In an industry that is notorious for excessive interest rates and charges, it is thought that more people will go to payday lenders for money if the caps are put in place. There would also be a cap on default charges, likely to be set at £15.
“For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstances. Alongside our other new rules for payday firms. . . the cap will help drive up standards in a sector that badly needs to improve how it treats its customers,” said Martin Wheatley, chief executive of the FCA.
The changes, which would come into effect in January next year, are part of the FCA's wider mission to clean up the consumer credit industry and reduce short-term borrowing costs.