PAYDAY LOAN CAPS INTRODUCED BY THE FCA
The Financial Conduct Authority (FCA) has introduced new caps to the payday loan industry set to be introduced in January 2015.
Interest charges are capped at 0.8% a day. This means anybody borrowing £100 for 30 days would pay a maximum of £24 in charges.
Fees for late payments will be capped at £15, with a total price cap of 100% of the original loan to stop default charges spiraling out of control.
The FCA’s changes comes a day after Wonga’s newly appointed chairman Andy Haste announced he was axing their puppet adverts in an attempt to clean up its act. Haste said he expected the new caps would mean Wonga would be a smaller and less profitable business in the short-term.
The new caps will mean that most payday lenders will have to reduce their charges. At the moment, borrowing £100 for 30 days with Wonga will cost £37.15 in fees. The Money Shop charges £29.99.
The FCA looked at other countries where restrictions on payday lending operate such as Australia where interest rates are capped at 4%.
However, the industry has warned that the experience in Australia has not been good.
Russell Hamblin-Boone from the Consumer Finance Association (CFA) said: “The evidence from other countries is that people either turn to illegal lenders – the back-street loan sharks – or more likely, they’ll go to online lenders who are operating outside of the UK.”
The FCA admitted that it expects the payday loan industry to become smaller once the caps have been introduced next year.
The FCA said some people will no longer be able to get the loans they got previously, but after an initial short-term period, they would be better off without them.
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