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FCA announce cap on pay day loan interest rates


The Financial Conduct Authority (FCA) has announced a cap on the amount of interest that pay day loan companies can charged their customers.

The new regulations announced mean that pay day loan interest rates will be capped at 0.8% of the amount borrowed a day, including fees. Fixed default fees will be capped at £15, and borrowers must never have to pay back more in fees and interest that the amounts borrowed.

From 2nd January 2015, no borrower will ever have to pay back more than twice of what they borrowed, and someone taking out a loan for 30 days and repaying on time will not pay more than £24 in fees and charges per £100 borrowed.

The FCA also expects 90% of pay day loan companies to participate in real time data sharing, in a attempt to curb the growing trend of borrowers applying for a receiving more than one pay day loan.

The FCA believes that with the new regulations 7% of people will no longer has access to pay day loans. They believe these are people who are likely to have been in a worse situation if they had been granted a loan, so the price cap protects them.

Martin Wheatley, the FCA's chief executive officer, said:
'I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
'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.'

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