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The Credit Services Association (CSA)
CP14/10: Proposals for a price cap on high-cost short-term credit
The high-cost short-term credit industry (including payday loans) has grown rapidly in recent years, as many consumers look for quick and easy borrowing to manage their finances.
The FCA began regulating these firms on 1 April 2014, with a strong commitment and clear remit to tackle poor conduct in the market and ensure that there is an appropriate degree of protection for consumers.
In January 2015, the FCA will introduce a cap on the total amount that high-cost short-term credit lenders can charge. The FCA are doing this to meet a duty given to them by the government to secure an appropriate degree of protection for borrowers against excessive charges in this market.
This consultation paper (CP) discusses the cap and the detailed research and analysis carried out by the FCA.
What is the price cap?
The FCA cap ensures that consumers will never need to pay back more than twice what they have borrowed, and someone taking out a typical loan over 30 days and repaying on time will not pay more than £24 per £100 borrowed. The FCA looked at the potential impact of the price cap on firms and consumers, and believed that it is proportionate and will benefit consumers.
The FCA expect the cap to lead to a reduction in lending and some customers who have previously taken out high-cost short-term loans will no longer get them. However, the FCA believe that, apart from for a short initial period, they will be better off without loans.
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