Back in July the Financial Conduct Authority (FCA) has announced that there is to be a loan cap on payday loans that are given out in the United Kingdom. The loan cap is effective as of 2 January 2015. This loan cap is detailed as follows:
- Default charges will stay at £15: this initial rate for all high cost loans must not exceed this rate
- The initial cost of the loan will be capped at 0.8% per day
Example of the loan in action
If a borrower takes out a loan for 30 days, the borrower will not be liable for more than £24 in late fees and charges per £100 borrowed in the loan.
How the loan cap is understood
Martin Wheatley, the CEO of the FCA says: “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.” Kristjan Novitski, the CEO of Peachy.co.uk welcomed the news of clear guidance from the FCA. “It is very good news that there are now clear rules for the industry, preventing consumers from spiralling into debt, while cleaning up the industry – making the competition much more fair as it will only be the responsible companies who survive.”
Peachy.co.uk is committed to responsible lending and has been since the day that the business was started. Kristjan Novitski says: “We hope these new rules will encourage consumers to come to lenders knowing that their prices are reasonable and have been well regulated. Undoubtedly there is a demand for such business, as proved by our own popularity since our launch in 2011, so it’s good that consumers can now trust all companies to deliver a high level of service where they cannot spiral into debt beyond their means.” The FCA notes that the new price cap will put around 70,000 away from the opportunity of taking a payday loan that they will not be able to pay back.
As a member of the Consumer Finance Association, Peachy.co.uk has focused on responsible lending in order to protect borrowers and lenders. Though the FCA says the loan cap will be instated in January 2015, the loan cap will be reviewed again in 2017.
What do you think of the loan cap? Tell us what you think.