FCA confirms price cap regulation on payday loans.
BANKING AND CREDIT NEWS-November 11, 2014-FCA confirms price cap regulation on payday loans
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UK financial services regulator the Financial Conduct Authority (FCA) confirmed on Tuesday that payday lending will be price capped from 2 January 2015, with the initial costs of short-term credit loans, interest and fees capped at 0.8% per day and fixed default fees capped at GBP15.
Following a consultation on the proposed price cap with various stakeholders such as industry and consumer groups, professional bodies and academics earlier this year, it was estimated that 11% of current borrowers would not be able to access payday loans following the price cap in January, however additional information has resulted in the FCA revising its original estimates of the impact on market exit and loss of access to credit and now estimates that around 70,000 people, or 7% of current borrowers, may be able to access to payday loans. These people are thought to be likely to have been in a worse situation if they had been granted a loan; therefore the new regulations will protect them.
According to the FCA, the cap will have three components: an initial cost cap, set at 0.8% of the outstanding principal per day, on all interest and fees charged during the loan and when refinancing; a cap of GBP15 on default fees and interest, under which interest can continue to be charged but at no higher rate than the initial cost cap (calculated per day on the outstanding principal and fixed default charges); and a total cost cap of 100% of the total amount borrowed, which will apply to all interest, fees and charges. The FCA also stated that a person taking out a loan for 30 days and repaying on time will not pay more than GBP24 in fees and charges per GBP100 borrowed.
The price cap will be reviewed in 2017.
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|Publication:||M2 Banking & Credit News (BCN)|
|Date:||Nov 11, 2014|
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