The Financial Conduct Authority (FCA) has announced that from 2 January 2015 consumers using payday lenders will see the cost of borrowing fall and will never have to pay back more than double the amount they originally borrowed.
In implementing the changes to the structure of payday loans the FCA have attempted to strike a balance between the needs of the firms who provide such loans and the consumers who use them.
The new price cap structure and levels are as follows:
(1) Initial cost cap of 0.8% per day – lowers the cost for most borrowers. For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.
(2) Fixed default fees capped at £15 – protects borrowers struggling to repay. If borrowers do not repay their loans on time, default charges must not exceed £15. Interest on unpaid balances and default charges must not exceed the initial rate.
(3) Total cost cap of 100% – protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than 100% of the amount borrowed.
However, the new price cap structure will only apply to High Cost Short Term Credit which is defined in the FCA CONC Rules as, inter alia, a regulated credit agreement in relation to which APR is equal to or exceeds 100%.
If you have any questions in relation to the above please fee free to contact Gavin Adams.