However, it appears the new regime will not spell the end of the huge annualised interest rates quoted on payday loan websites
Well over a million people will see the cost of their borrowing fall now that new price caps on payday loans have taken effect.
However, early indications are that many of the sector’s bigger players will be charging the maximum amount allowed to under the new regime, rather taking the opportunity to set their fees below the cap.
Interest and fees on all high-cost short-term credit loans are now capped at 0.8% per day of the amount borrowed.
In addition, the total cost (fees, interest etc) is capped at 100% of the original sum, which means no borrower will ever pay back more than twice what they borrowed, said the Financial Conduct Authority (FCA), which has introduced the new rules.
Payday lending is a multibillion-pound sector: the Competition & Markets Authority said there were 1.8 million payday loan customers in 2012-13, while the FCA estimates that in 2013, 1.6 million customers took out around 10m loans. However, some lenders quit the market before the changes took place. These include Minicredit, which ceased its lending on 10 December.
Consumer organisation Which? said the new regime “comes not a moment too soon”. Richard Lloyd, Which? executive director, said: “The regulator has clearly shown it is prepared to take tough action to stamp out unscrupulous practices, and they must keep the new price cap under close review.”
Someone taking out a ?100 loan for 30 days and paying it back on time will not pay more than ?24 in fees and charges
Which? carried out research into the amounts payday lenders were charging just before Christmas, to see if they had cut the cost of borrowing ahead of the price caps taking effect. It found that some of the bigger payday lenders had already brought their charges in line with the price caps. Wonga, QuickQuid, PaydayUK and MyJar were charging the maximum ?24 to borrow ?100 for 30 days, with default fees charged at ?15.
When the Guardian checked some of the lender websites on 31 December, it found some had not yet updated their pricing. ‘s website was quoting a cost of ?135 for a ?100 loan over 30 days, while showed a cost of ? and Safeloans quoted ?130.
Which? said London Mutual credit union was the only payday loan provider it looked at that charged less than the maximum allowed under the cap, with borrowers having to pay just ?3 in interest on a loan of ?100 over one month, with no default fees.
Martin Wheatley, chief executive of the FCA, said the new caps would make the cost of a loan cheaper for most consumers. “Anyone who gets into difficulty and is unable to pay back on time, will not see the interest and fees on their loan spiral out of control – no consumer will ever owe more than double the original loan amount,” he added.
Despite the changes, Wonga is still able to charge a representative APR of 1,509%, while QuickQuid’s site was promoting an APR of 1,212%.
New rules covering payday loan brokers have also taken effect after the regulator was deluged with complaints over practices such as imposing charges that consumers often knew nothing about until they checked their bank account.
These firms cannot now request an individual’s bank details or take a payment from their account without their explicit consent first. Payday loan brokers will also have to include their legal name, not just their trading name, in all advertising and other communications with customers, and state prominently in their ads that they are a broker, not a lender.