The Financial Conduct Authority (FCA) has announced its plans to put in place a cap on how much payday lenders can charge their customers. This will become effective as of January 2015.
Earlier this year the FCA said that, in response to growing concerns, they would begin to closely scrutinise the way in which payday lenders recoup debts from customers.
Their plan is to limit payday loan rates to 0.8% per day and also limit the total cost cap to 100%. The latter measure will ensure that no borrower ever repays more than double the amount they were lent.
Martin Wheatley, chief executive of the FCA, said: "For many people that struggle to repay their payday loans every year, this is a giant leap forward."
The 0.8% will mean that no borrower will pay more than £24 back per £100 they borrow. As it stands, The Money Shop charges £29.99 for a 30-day loan of £100, whilst Wonga charges £37.15.
The FCA has said that the average borrower will save just short of £200 per year as a result of these measures, whilst payday lenders could collectively lose up to £420 million per year.
The Consumer Finance Association (CFA) has said that it predicts the payday loan industry will shrink considerably over the next few years as a result of the FCA's tightening of regulations.
The CFA also believes that lenders will now be more selective with regards to who they lend to; as there will be a cap on how much they can charge, payday loan companies are more likely to shy away from lending to riskier customers.
Russell Hamblin-Boone, the CFA's chief executive, commented: "Many more people will be turned down for loans from reputable lenders."
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