Jump to content

Payday loans: New law to cap costs


Recommended Posts

The government is to introduce a new law to cap the cost of payday loans.

The level of the cap, which has not yet been announced, will be decided by the new industry regulator, the Financial Conduct Authority (FCA).

The Treasury says there is "growing evidence" in support of the move, including the effects of a cap already in place in Australia.

But the industry said the move could restrict credit, and encourage more illegal lending.

The cap will be included in the Banking Reform Bill, which is already going through Parliament.

Speaking to the BBC, the Chancellor, George Osborne, said there would be controls on charges, including arrangement and penalty fees, as well as on interest rates.

"It will not just be an interest rate cap," he told BBC Radio 4's Today programme.

"You've got to cap the overall cost of credit."

'Duty on regulator'

Previously the government had said such a cap was not needed.

But the chancellor denied the government had a made a U-turn on the issue, saying he was not pre-judging the outcome of a Competition Commission inquiry into payday lending.

"These things can go along in parallel," he said.

Some payday lenders have been criticised for charging more than 5,000% annual interest - though the lenders say these loans are meant to be short-term, so the annual rate can make charges appear worse than they are.

Australia has an interest rate limit of 4% per month, after a maximum up-front fee of 20%.

The FCA has already been given the power to cap the costs of payday loans.

But under the new law, the FCA will now have a duty to go ahead and introduce price controls.

"Now the regulator will go away and decide what is the best form of cap," said Mr Osborne.

The FCA takes over as the industry regulator in April 2014, so no changes are expected before 2015.


The FCA has also proposed a series of measures to clamp down on the industry, including limiting loan roll-overs to just two, and restricting the use of continuous payment authorities (CPAs).

But the Consumer Finance Association (CFA), which represents some of the payday lending firms, was sceptical about whether price controls would work in consumers' interests.

It said the move could encourage more illegal lending.

"Research from other countries where a cap has been introduced, suggests price controls would lead to a reduction in access to credit, and open up a larger market for illegal lenders," a spokesman said.

The FCA itself has also expressed reservations about a cap on charges, fearing that some lenders might increase fees to the legal maximum.

Labour leader Ed Miliband has already said his party would cap the cost of payday loans.

Mr Miliband has said payday lenders should be banned from advertising on children's TV

Mr Miliband has also pledged to give councils new powers to limit the spread of payday lending shops in town centres.

The shadow minister for competition and consumer affairs, Stella Creasy, told the Today programme that "the devil really is in the detail".

"This industry's a bit like an inflated balloon and if you don't crack down on the whole cost of credit, then wherever they can recoup their costs by expanding the prices at other points, they will."


Link to comment
Share on other sites

  • Replies 12
  • Created
  • Last Reply

If you use these things you're a tool.


You say that, but I once had to use the cheque cashing service as a last resort.


I'd recently moved into a flat and then subsequently been made redundant, ALL of my savings had gone on carpets, curtains, shelves etc.


I was unemployed for about a month, spending all my dole money on attending interviews, then I was offered a job. The problem was, I needed to travel from where I live, to town, then from town to Spondon, and then the same two journeys back again. I had no money for transport and nothing for food and my first payday was 7 weeks away. I have no rich family members or friends, and was basically fending for myself. As I'd been unemployed less than six months, I didn't qualify for any help with bus fare or food.


I was left with 2 choices, 1) Decline the job offer and stay unemployed 2) Cash a series of cheques at a payday loan company.


I managed to survive the first two weeks, but then had to cash 3x £100 cheques, all post-dated for consecutive days. For my £300 cheques, I received £239 after the 13% charge and the startup fee. I never used one since. But it was my only option then, and I don't believe I was a 'tool' for chasing the job.

Link to comment
Share on other sites



Do you genuinely believe that?


Someone who WANTS to earn a living is a tool for having to bargain his way into the position of being able to accept a job offer?


What do you think of someone who would turn down the job and stay on the dole, on the grounds of refusing to cash a cheque?


I'd be interested to know your view on people who don't speculate to accumulate.

Link to comment
Share on other sites


This topic is now archived and is closed to further replies.

  • Create New...