What Is the FCA Cap on Payday Loans?

Q: What is the FCA cap on payday loans? ~ Scott, Wigan.

The payday loan cap was instructed by the government and then planned and put into action by the industry regulator. This is the Financial Conduct Authority (FCA) who took on the position after replacing the Office of Fair Trading (OFT). Through the industry’s mass popularity, the increasing debt statistics and the widespread media attention surrounding payday lending, it was clear that there would be some kind of capping imposed sooner or later following in the footsteps of other countries. The Chancellor of the Exchequer (George Osborne) made the announcement in November 2013 that a cap on the cost of payday loans would be initiated through amendments on the Banking Reform Bill.

The FCA had already run changes with advertisements, affordability checks and rollovers. The 2015 loan cap was thought out and later announced in a press release in July 2014. After this took place, we already started to learn of lenders closing down their services and this trend continued right up the time that the changes had to be enforced as of January 2nd, 2015. Since this time, the total cost has been capped at 0.8% daily (interest plus fees). A £100 30 day loan can now be priced no more than £24. A default fee is now going to stop at £15 and the 0.8% rate then comes in.

There will be a review of this regulation in 2 years. Many monthly lenders have shut down and others have upgraded their products into longer term offerings. The capping per day is improved compared to America. In select states there may be a total cost to meet, but this is set for a month and so companies simply charge this full amount for terms over a few weeks. Whilst our regulator has worked this well, there has been no such restrictions imposed on excessive banking overdrafts. With one leading bank, if you dip into an unauthorised overdraft by just a pence for a day then you will receive a £5 daily charge for your troubles.

Update: We have noticed that a few companies haven’t made the necessary changes to meet the new regulation. Their websites are however still live and taking applications. We will be listing these firms soon, but we just want to give them another month or so to make the changes. Every company that is listed within our comparison pages do meet the required limit. The problem with the short term firms is that many tend to price match at 0.8% per day that makes it more tricky to compare. For a better idea on pricing the instalment sector works well since most charge way below the limit and so price matching is less common.