UK regulators have put an end to lenders demanding exorbitant interest on payday loans. They announced a fair cap for such short-term credits would come into effect as of next year to suit both borrowers and lenders.
Interest charged on loans offered by payday lenders in Britain would be capped at 0.8 percent per day from January of next year, the country's Financial Conduct Authority (FCA) announced Tuesday.
The decision was made after months of consultations and stark critcism by consumer protection groups of exorbitant interest rates often causing misery among borrowers.
The authority also stipulated that borrowers must never have to pay back more in fees and interest than the amount granted to them, meaning a total cost cap of 100 percent.
No more spiraling payday debts
"I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market. Any higher and there would not be adequate protection for borrowers," #link:http://www.fca.org.uk/news/fca-confirms-price-cap-rules-for-payday-lenders:FCA Chief Executive Martin Wheatley said#.
The FCA added default fees would be capped at 15 pounds ($24, 19 euros).
"For people who struggle to repay, we believe the new rules will put an end to spiraling payday debts," Wheatley argued. "For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections."
The FCA had first published its proposals for a payday loan price cap in July. The price cap structure and levels remained unchanged following the consultation process.