Q and A: What is happening to payday loans?

Q Why are changes being made?

A Payday lenders are under fire for lending at interest rates that can reach as high as an annualised 5,000 per cent. Now the City has a new conduct regulator, it is taking charge of the sector to look after consumers.

Q What changes are on the way?

A The Financial Conduct Authority wants firms to carry out more checks on the affordability of the short-term loans and introduce a tougher licensing regime to improve the quality of firms in the market.

Q Will it work?

A The biggest lenders know they must improve the sector’s image or risk a bigger campaign to shut them down, so they are already trying to make it work. It looks like these new plans will shut down the worst behaved firms but let the rest carry on in a more controlled environment.

Q What happens next?

A The rules are open for consultation until March 2014. The FCA will study the effects then review the whole setup in 2019.