The Financial Conduct Authority (FCA) has confirmed its plans to introduce caps on payday loan rates, and has outlined the specific restrictions it will put on payday loan companies.
It has long been reported that the City regulator is dissatisfied with the current rules, as it believes they allow consumer credit companies to take advantage of those already in debt trouble. The FCA has been in the process of reviewing these rules ever since it took over as the consumer credit regulator back in April.
What new restrictions will be placed on payday loans companies?
As the FCA proposed in July, the limit on the interest rate for high-cost short-term loans will definitely be 0.8% of the amount borrowed, per day.
There will also be a total cost cap on 100% – in other words, there will never be a scenario in which a borrower will have to pay back more than double the amount they were lent.
As a result of these changes, the FCA estimates that around 11% of current borrowers will no longer qualify for their payday loans. The regulator believes this will help to prevent people from borrowing money they cannot afford to pay back.
What happens if a borrower does not make their repayments on time?
Although the aforementioned regulation changes will help to stop consumers from becoming further indebted, there may still be instances of late payment. The FCA has decided that, as of 2nd January 2015, borrowers will not be charged more than £15, and has also stated that the interest on their unpaid balances will stay the same as opposed to going higher.
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