The payday loans industry is expecting to see revenue shrink by 42 per cent if new caps on interest proposed by the Financial Conduct Authority (FCA) come into force.
The FCA said it estimated firms would lose £420m annually as a result of its proposals to cap interests on loans at 0.8 per cent per day, with a total cost cap of 100 per cent interest on loans.
Default charges will be capped at £15, as consumers will save £193 a year on average from the proposals, which will undergo a consultation period now, with final rules to take effect in January 2015.
The proposals were criticised by the Institute of Economic Affairs, as director general Mark Littlewood said: “Having the regulator set maximum interest rates and penalties for late payment will freeze out the most needy from the credit market.”
The Consumer Finance Association, which represents payday lenders, said that measures in place are already stringent enough.