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Unfair Payday Loan Charges Capped – But Remain ‘Risky’

People seeking easily accessible loans in theory will have more protection over spiralling charges on their Payday Loans from January. The Financial Conduct Authority (FCA) has announced a cap on interest and fees, default charges and a total cap that means people will not have to pay back more than double what they initially borrowed.

However, there are already worries that the FCA’s measures will not encourage Payday lenders to lend fairly or ethically, and people who borrow from them may still find themselves being overcharged or in a worse financial state as a result.

MP Stella Creasy, a concerned campaigner against doorstep lending, described the FCA’s announcement as “an early Christmas present for Britain’s legal loan sharks”.

“This cap is just £1 lower than their current charges,” she told the Guardian. “This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers – such a high cap will do little to tackle these rip off charges.”

The FCA’s chief executive officer Martin Wheatley said that its research had concluded that around 7% of current Payday Loan borrowers will not be able to continue doing so when the new rules start in the new year.

Plan your borrowing for a better deal

Kris Baldwin – Head of Operations at Auto Advance Logbook Loans said: “January is a lean time for many people financially stretched after the Christmas period so we advise people to assess their budgets now, plan for the weeks ahead. If people think they are going to need to borrow money, there are ways of doing so that don’t involve ridiculously high interest rates and charges.”

“Borrowers should welcome this move from the FCA but they should also be aware that high cost, short term borrowing can be financially risky. There are better alternatives to Payday Loans that have lower interest rates and longer repayment terms that don’t pile more pressure onto people who borrow.

“Do your research and choose wisely, and if you’re really in trouble we advise people to seek help from a free debt service rather than borrow themselves into a deeper hole.”

If you’re still unsure, our blog post Better alternatives to payday loans looks at other ways for you to borrow money.

Capped, Payday Loans, Risky