FCA Capping Pay-Day Charges
Written by Tom Maplethorpe on 13 November 2014
Pay-day lenders have been told they must cap the charges they apply to their short term loans.
These new rules, enforced by the Financial Conduct Authority, reduces the cost of borrowing for many, whereas those that struggle to pay are better protected from excessive charges and they will also help people to avoid escalating debts:
- An initial cost cap of 0.8% per day on interest and charges of the amount borrowed will be applied for all pay-day loans.
- Fixed default fees will be capped at £15 if borrowers don’t repay their loans on time. Interest on unpaid balances and default charges must not exceed the initial rate.
- A total cost cap of 100%, will also be applied, meaning borrowers will never pay back more in fees and interest than the amount they have borrowed.
What does this mean for borrowers?
This means that from 2 January 2015, borrowers will never pay back more than twice of what they borrowed, and people taking out a loan for 30 days and making their repayment on time won’t pay more than £24 in fees and charges per £100 borrowed.
As a result of the changes, the FCA thinks that around 70,000 people who previously secured a Pay-day loan would be unable to under the new, tighter, rules – which amount to around 7% of the total of current borrowers.
What about those that want a loan, but now can’t get one?
FCA modelling states that of the 70,000 would-be payday loan customers, the vast majority would in fact make do without one, others would borrow from their family or employer, whereas only 2% would take credit from an unauthorised lender.
Are there other options?
Aside from taking a loan from family, friends and unauthorised lenders, there are other options that can help you take control of your finances. Free debt advice and debt solutions provided by PayPlan are realistic, sustainable and help you to manage your money month on month as well as responsibly repay your debt.
Our debt plans are built around you and your circumstances, meaning that you only pay what you can afford – so you can look forward to living, not just surviving.
To find out more about our free debt help and our debt plans, call us today on 0800 280 2816. You’ll find our team of trained advisers understanding of your situation and always on hand to help you find a solution that fits your life.
Filed under Money Saving Ideas