New law to cap costs on payday loans

The government has announced that a new law will be put in place, to cap the cost of payday loans. The level of the cap will be decided by the new industry regulator, the Financial Conduct Authority (FCA), and will be included in the Banking Reform Bill, which is already going through Parliament.The Chancellor, George Osborne, said that the law would also bring in further controls on charges, including arrangement and penalty fees, as well as on interest rates. The FCA has also proposed a series of measures to clamp down on the industry, including limiting loan roll-overs to just two, and restricting the use of continuous payment authorities (CPAs).But the Consumer Finance Association (CFA), which represents some of the payday lending firms, was sceptical about whether price controls would work in consumers’ interests. It suggested that the move could restrict credit, and encourage more illegal lending. “Research from other countries where a cap has been introduced, suggests price controls would lead to a reduction in access to credit, and open up a larger market for illegal lenders,” a spokesman said. The FCA itself did also express concerns about a cap on charges, fearing that some lenders might increase fees to the legal maximum.The FCA takes over as the industry regulator in April 2014, so no changes are expected before 2015.The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.Setfords Solicitors are a national full service law firm, with debt recovery solicitors in Coventry and across the country.