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The Credit Services Association (CSA)
Payday loans cap proposed
Proposals for a cap on what payday lenders can charge customers have been announced by the Financial Conduct Authority (FCA).
The City regulator says that the proposals are intended to fulfil their duty to secure "an appropriate degree of protection for borrowers against excessive charges" in the high-cost short-term credit industry.
The FCA's proposals include:
- Cap of 0.8% a day in interest charges. Someone who takes out a loan of £100 over 30 days, and pays back on time, will therefore pay no more than £24 in interest
- Default fees capped at £15. Borrowers who fail to pay back on time can be charged a maximum of £15, plus 0.8% a day in outstanding interest
- Total cost cap of 100%. Even if a borrower defaults, he or she will never have to pay back more than twice the amount they borrowed
The FCA is responding to the rapidly growing high-cost short-term credit industry, which customers are increasingly turning to in order to secure quick access to credit.
Responding to the proposals, the payday industry claim that the proposals would lead to more customers turning to loan sharks for credit. Russell Hamblin-Boone of the Consumer Finance Association (CFA) warned the BBC: "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."
Martin Wheatley, chief executive of the FCA, said: "The actual number of people who consider loan sharks or use them is very very low… ..it might increase, but frankly that is an illegal segment of the market and we would work very closely with other authorities to ensure that market doesn't grow."
The regulator has published a consultation paper and responses must be received by 1 September 2014.
The FCA plan to publish the final rules in November, with the caps due to be introduced on 2 January 2015.