Payday loans cost cap of 0.8% a day proposed by FCA

The regulator are have said they aim to meet a duty given to them by the Government to secure an appropriate degree of protection for borrowers against excessive charges in this market.

The cap ensures that consumers will never need to pay back more than twice what they have borrowed, and someone taking out a typical loan over 30 days and repaying on time will not pay more than £24 per £100 borrowed. The FCA called the cap 'proportionate' and expects it lead to a reduction in lending.

A cap on charges for borrowers who default has been set at £15, which 'reflects the need to provide consumers with an  incentive to pay back on time, whilst also providing the right incentive to firms by not rewarding failure to properly assess affordability'.

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."