- Short-term loan fees and interest must not exceed 0.8% per day of the total amount that was initially borrowed. This means the cost of borrowing in reduced for most people.
- Default fees must not exceed £15. If a payday borrower is finding it difficult to repay and misses a payment, the fixed default fees must be capped at £15 with interest on unpaid balances not exceeding the initial rate (max 0.8% per day).
- Borrowers must never pay back more in fees and interest than the amount borrowed.
This means that a thirty day loan of £100 will cost no more than £24 in charges and fees.
What this also means for borrowers is greater protection against spiraling out of debt due to excessive payday loan charges. What it doesn’t protect against is the ability to take out one payday loan to pay another which should never be done and is the main reason why so many people get themselves caught up in spiraling debt.
As part of the proposals in the Summer of 2014, the FCA also estimated that the new rules would mean that roughly 11% of people currently accepted by payday lenders, would no longer have access to payday loans.
Many payday loan companies have changed (or are changing) their product offering to accommodate the new rules. This means the introduction of installment loans or potential loopholes in order not to miss out on new business, could mean rather than protecting customers, it makes short-term loan borrowers more vulnerable and could put them in a far worse financial situation than they would have been.
It is still up to each individual direct lender as to whether a customer is eligible for a loan under the new FCA rules and will continue to look into the financial details of each applicant, including carrying out credit checks through credit reference agencies.
The introduction of the new rules have been celebrated as a step towards protecting those that are financially vulnerable and the FCA is expected to continue to review regulations in order to help protect these people further.