The payday loans industry could lose £420 million of revenue a year after the City regulator unveiled plans to impose a cap on the interest and fees providers can charge their customers.
The Financial Conduct Authority (FCA) said that, from January, new loans cannot charge more than 0.8 per cent interest a day – and the overall cost will not be allowed to exceed 100 per cent of the loan amount.
FCA chief executive Martin Wheatley said: “For the many people that struggle to repay their payday loans every year this is a giant leap forward.
“From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20. That’s a significant saving.
“For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstance.”
Some 1.6 million customers took out ten million payday loans last year, with a total value of £2.5 billion.
As well as the daily interest cap of 0.8 per cent, the FCA will limit fixed default fees at £15.
The watchdog estimates the move will see payday loan providers lose £420m in revenues each year.