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Fca Proposes Cap On High-Cost Short-Term Credit (Payday Lenders)

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Consultation paper announced by FCA.


Why are we consulting on this?

In January 2015, we will introduce a cap on the total amount that high-cost short-term credit lenders can charge. We are doing this to meet a duty given to us by the Government to secure an appropriate degree of protection for borrowers against excessive charges in this market.

This consultation paper (CP) discusses our cap and the detailed research and analysis that we carried out to inform our proposals.

What is our price cap?

Our 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.
We looked at the potential impact of our price cap on firms and consumers, and we believe that it is proportionate and will benefit consumers.

We expect the cap to lead to a reduction in lending and some customers who have previously taken out high-cost short-term loans will no longer get them. However, we believe that, apart from for a short initial period, they will be better off without loans.

Initial cost cap

We tested a range of charges between 0.4% and 1% per day. A 0.8% cap per day lowers prices for borrowers who pay back their loans on time. This is calculated as a daily rate, which means the cost of the loan is directly proportionate to its duration.

Calculating the initial cost cap according to a percentage of the loan also means that pricing is proportionate to the size of the loan, so consumers only pay higher prices if they borrow more. This is fair for firms too, as the majority of their costs increase with the size of the loan. It also means they still have some flexibility to choose their own pricing structures.

Caps on default fee and default interest

It is reasonable not to prevent firms making a charge as they incur costs when a borrower fails to repay on time, so long as they are not excessive and they treat borrowers in default or arrears difficulties with forbearance and due consideration. We think that a £15 cap on default charges 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.

Total cost cap

The total cost cap protects borrowers from escalating fees and charges on longer loans.

We tested a range of total caps from 50% to 200%. We believe 100% balances protecting consumers and allowing firms to continue offering loans for different lengths of time. Taking into account behavioural factors, we also think a 100% total cost cap would be easier for consumers to understand and help them to identify any lenders that charge them more.

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so under the new rules, 160,000 people now won't get a loan.

At an average of £260 per loan, that's £41,600,000 of debt money which now can't be spent into the economy

Will someone please think of the GDP! :lol:

Edited by Reck B

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Wonga rats & ships..

Errol Damelin, who co-founded Wonga in 2006 and quit as chief executive in November, is cutting his last ties as part of “an orderly exit from the company” that will allow him to work on new business ventures, the payday lender said.

His departure as chairman comes as the UK payday lending industry is facing one of the most difficult periods in its history. As many as half of the UK’s 240 payday lenders have left the market in the past 18 months. The exodus was largely triggered by the introduction of tougher rules in April when the Financial Conduct Authority took over the regulation of consumer credit.


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Ahh now this makes sense. With some nice cheaap money from the bankrupt of england, the favoured banks themselves can gorge off the results of the debt party themselves.

What a thoroughly disguting cesspool of influence, greed and scumbaggery this country is.


Banks look to replace payday lenders

By Sharlene Goff and Claer Barrett

Some of Britain’s biggest banks are examining ways to launch payday-style loans as a new cap on the cost of credit is expected to drive many smaller operators out of the market

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