Payday lenders to have charges capped
15/07/2014
Payday lenders are likely to see the amount they can charge their customers capped from January 2015, after the Financial Conduct Authority (FCA) announced tougher plans to regulate the industry.
The plans will mean that interest rates on payday loans will be capped at 0.8% a day of the original amount borrowed, whilst no person will be obligated to pay back more than twice the value of their loan.
Additionally, payday lenders will only be able to charge a maximum of £15 in default charges for late payments.
The FCA said the average customer can expect to save £193 a year under the new regulations, whilst it is expected cost the industry £420m a year, which is about 42% of their total revenue.
Speaking about the planned changes, Martin Wheatley, chief executive of the FCA said: “For the many people that struggle to repay their payday loans every year, this is a giant leap forward”.
Illegal lenders
However, industry leaders have criticised the new regulations, stating their belief that they could lead to vulnerable people turning to loan sharks.
These claims were based on what has happened in Australia since they brought in similar regulations to the payday industry.
Russell Hamblin-Boone of 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 has admitted it could be the case that some people will no longer be able to turn to payday loan companies, but claimed that in the long-term, these customers would be better off without the loan, due to the previously “excessive” charges.
There has already been a reduction in the number of payday loans since July the 1st when the FCA introduced regulations such as affordability checks and controls on lenders ability to take money from customer’s bank accounts.
A summary of the changes:
1. There will be an initial cap of 0.8% a day in interest charges. So for example, if somebody loans £250 for 14 days, they will pay no more than £28 in interest.
2. Companies will be unable to charge more than £15 in default fees if a customer defaults on their loan payments.
3. The total cost of the loan will be set at 100%, even if the customer defaults on their payments. So for example, a person who lends £250 will pay back no more than £500.<.p>
Need financial advice?
If you need to ask a financial question then please contact our financial advisers online or over the phone to get help with your query.
Share this..
Related stories
Student Debt Touches £22 Billion
It is a figure which may well scare many potential students into entering the employment market earlier than they planned, but news that student debt in the UK has mushroomed to a massive £22 billion has not been well received by the National Union of Students. Under the new regime in the UK (except Scotland) the average student will leave university with debts in the region of £30,000 and cost...
Read MoreWill Gordon Brown cave in to the car manufacturers
News that President Bush has today agreed a $17 billion rescue package for the US car manufacturing industry has placed yet more pressure on Gordon Brown and Lord Mandelson to agree a similar package in the UK. The signals from the UK government have been mixed of late with one-day a rescue package on the horizon and the next day the industry is seemingly left to fend for itself.
Th...
British Gas customers still being short changed
27/08/2015 Millions of British Gas customers will be seeing their bills fall after a 5% price slash in the coming months, but many industry experts have claimed that the supplier is still “short changing” their customers. The price reduction, which was announced in July but came into effect this week, has led to criticism from some. Many industry experts believe Britain’s biggest ener...
Read MoreE.On fined £7.75m for overcharging customers
07/04/2015 One of the UKs largest energy suppliers, E.On, has accepted a penalty of £7.75 million from the energy regulator, Ofgem, for overcharging its customers. The company announced that it has accepted the fine, which was imposed after Ofgem discovered E.ON was incorrectly charging exit fees and overcharging customers following price rises in 2013 and 2014. Around 48,000 customers whe...
Read MoreElderly urged to apply for insulation grants
Recently confirmed price increases from gas and electricity providers mean it is even more important that the elderly apply for grants to help insulate their home, a government minister has said. Over the last two months, npower, British Gas, Scottish Power and EON have all confirmed double digit price increases to their energy tariffs. This could leave pensioners in particular facing a struggle t...
Read More