City regulator is cracking down on payday lenders, putting in place new rules
that cap the amounts they are able to charge their customers.
Following the move, payday loan rates will now top out at 0.8 percent per day against the total amount borrowed, according to the Financial Conduct Authority (FCA).
The move ensures the total anyone has to pay back will not exceed more than twice what they borrowed, and places a strict, non-negotiable £15 cap on default charges.
Speaking about people who find it difficult to repay, FCA chief executive Martin Wheatley said: "We believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections."
The newly proposed plan, which will effect both fees and interest, remains largely unchanged from those that the FCA first laid out back in July.
The Consumer Finance Association's Chief Executive, Russell Hamblin-Boone, claims the payday lenders have already been hard at work fine-tuning their codes of conduct, and the new measures will help people avoid racking up crippling debts.
During a Q&A with the Today programme on BBC Radio Four, Hamblin-Boone discussed the restrictions placed on loan extensions, and the ability to roll over debt, promising "tighter checks on people before we approve loans."
"This [cap], if you like, is the cherry on a rather heavily-iced cake," he went on to say.
"We'll inevitably see fewer people getting fewer loans from fewer lenders," Mr Hamblin-Boone said. He went on to acknowledge that the demand for payday loans would not go away, stressing the need to provide alternatives in order to prevent people from turning to illegal payday lenders.
An estimated seven percent of current borrowers, somewhere in the region of 70,000 people, will no longer have access to payday loans once the new reforms are enforced. It is hoped the move will shield borrowers from getting deeper into debt; the price cap protecting them from being granted loans that would inevitably compound their debts.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk