A cap on payday lenders

The Financial Conduct Authority has issued a consultation paper proposing, from next January, a cap on the rate of return that a payday lender can charge.  The consultation paper is lengthy (141 pages in total), but it boils down to three main points:

  • a cap on total interest and fees of 0.8% per day, equivalent to £24 over 30 days;
  • a cap of £15 on fees for default;
  • a cap on total costs of 100% of the loan.

Importantly, “firms may not charge compound interest when calculating the cap.” (p.32)  A charge in excess of the caps will make the whole agreement unenforceable, not just the proportion of the charge that exceeds the cap.  But there is still a problem of repeat borrowing, with each cap applying separately to fresh loans.

The FCA want responses from consumers and their representatives:

Anyone who has taken out, is considering taking out, or has been refused a high-cost short-term loan, or had difficulties paying back such loans, may want to comment on our proposals for a price cap.

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