Borrowers in the UK will never repay more than double the amount of their original loan, according to the UK’s financial watchdog.
Interest fees will now be capped at 0.8% per day that will lower the cost for borrowers taking out the payday loans. The default fees will also be capped at £15 to help people that are finding it hard to keep up with their repayments.
The changes will start on 2 January 2015, and will mean that if a person borrowed £100 for 30 days, they will not pay more than £24 in fees if they keep to their payment deadline.
Striking a balance
According to the FCA Chief Executive, Martin Wheatley, this new rule does not aim to push payday lenders out of business, it aims to “strike the right balance for firms and consumers.”
He follows on to say, “For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”
Since the FCA took over five months ago, the amount borrowed and the number of loans has fallen by 35%.
Labour MP Stella Creasy feels the new rules are not strong enough to tackle these ‘legal loan sharks’.
“This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers – such a high cap will do little to tackle these rip-off charges.”
She says other countries including Australia, Japan and Canada have better protection than UK customers.
Wonga, the UK’s largest payday loans company, stated that it “looks forward to launching a cap-compliant product”.