City Watchdog To Unveil Payday Loan Cap
The City regulator will unveil plans later for a lower-than-expected cap on the cost of payday loans in a move that will create one of the world's most stringent regulatory regimes for the fast-credit industry.
Sky News understands that the Financial Conduct Authority (FCA) will announce at 7am a plan to restrict the total cost of credit charged by payday lenders to "significantly less" than £30 for each £100 lent to customers.
The £30 figure had been cited in several weekend newspaper reports, but City sources said on Monday night that the actual figure would be substantially lower, underlining the looming challenge to the profitability of Britain's quick credit providers.
The FCA's figure will comprise the overall cost of credit, including fees and other charges, as well as the headline interest rate levied by payday loan firms.
Martin Wheatley, the FCA chief executive, has previously expressed scepticism about the potential efficacy of a cap.
He has effectively been forced to implement one by George Osborne, the Chancellor, who used an amendment to the banking reform bill last November to "put a duty on the FCA to use [its] powers to impose a cap".
The FCA declined to comment on the level of the cap ahead of its announcement, but said it had examined similar measures in Australia and Florida, and had sifted through data relating to 20m short-term loans made by 33 firms.
It also recently introduced a mandatory affordability test for every loan as well as other curbs on companies' lending practices such as limiting the number of loan rollovers to two.
"This [cap] will be one of a number of powerful measures that the FCA proposes to use to ensure consumers are treated better when applying for, and repaying, payday loans," the regulator said in December.
"We believe these measures will protect consumers but also allow businesses to operate successfully."
In an interview with The Independent last week, Mr Wheatley said that the objective of the cap was not to drive lenders out of business.
"The reality is that, despite some politicians and members of the public regarding payday lenders as an evil that should be banned, many people use them and there are legitimate reasons to use short-term high-cost credit, as a million people did last Christmas," he told the newspaper.
"Our role is to find that balancing point between stopping the excesses which are designed to abuse vulnerable consumers, but still allowing the availability of loans to those who can use them in a mature and responsible way.
Details of the FCA proposals will come less than 24 hours after Wonga appointed Andy Haste, a City veteran, as its new chairman with a brief to overhaul the company's image.
Mr Haste, who will initially be paid £500,000 a year, will oversee a review of the business which he said would aim to make it more transparent and strive to avoid "inadvertently" targeting vulnerable consumers.
The FCA also said on Monday that Dollar, which trades in the UK as The Money Shop, had agreed to refund more than £700,000 of interest and default charges to 6,247 customers who had received loans which exceeded Dollar's own lending criteria.