The industry regulator, the Financial Conduct Authority (FCA), has said that they are imposing strict regulations on payday loan companies from 2nd January 2015. The new laws will change the way fees are charged by payday loan organisations.
There will be a price cap on the amount of money a payday lender can charge per day and the total amount which can be charged in late fees or repayments.
If you have a payday loan which you are struggling to repay speak to Debt Support Trust on 0800 085 0226.
Changes to Payday Loan Fees
The fees charged by payday lenders was previous unlimited. This meant that a company could charge what they wanted to for missed or late payments and the interest rate could be as much as they wanted.
People in debt to payday loans would contact Debt Support Trust seeking our debt help. We would frequently hear about a £100 loan which had risen to £1,000, or more, because of late payments and rolling debts over.
The new legislation will mean that debts in a payday loan will be capped at double the initial loan. Also, the interest rate is going to be capped at 0.8% per day. Previously, a loan of £100 would typically cost £125 to repay at the end of the month. If the person was unable to repay the £125 then the debt would be rolled over and a fee may be charged too. This further compounded the debt problem for the individual.
New legislation will protect people from short term lenders offering 30 day loans. The total amount of money which can be repaid will be equal to double the initial loan. The fees for late payments will be capped at £15.
Impact on Changes to Payday Lending
The changes to payday loans have been generally welcomed by the industry. At Debt Support Trust we're pleased to see positive action being influenced by the financial regulator. It's estimated that 7% fewer people, roughly 70,000, will no longer borrow from short term lenders. The FCA has said that lending has dropped by 35% since it took control of regulating the financial credit market. It's also been suggested that the proposals don't go far enough to protect consumers from the pitfalls these payday loans offer.
The payday loans industry has said that it expects more people to turn to loan sharks and unregulated lenders in order to survive financially.
Today's announcement doesn't clarify what short term lending would constitute as other lenders offer loans over longer terms than the standard 30 day loan.
We would encourage anybody experiencing financial problems to seek help from our charity on 0800 085 0226 or visit your Citizens Advice Bureau.