People taking out payday loans will never have to repay more than twice the sum they borrowed, under a further clampdown on the controversial short-term loans industry proposed by the
The cap proposed by the
The FCA said it had tested other price caps, but double the original loan was easy for consumers to understand.
The regulator's stricter-than expected cap comes one day after newly appointed Wonga chairman
He said more than half of people taking out payday loans pay extra late charges.
"Unfortunately that has been a big part of the business model where the profitability comes from frankly people who can't afford the loan and that is why the additional cap acts as a backstop to stop people ratcheting up loans many many times the original amount."
But money-saving experts warned that the proposed cap would still leave customers paying hefty interest charges on expensive loans.
The chief executive of Citizens Advice,
"A payday loan cap is not the final piece of the puzzle; consumers need more choice and access to advice. Not only is the clean-up of the existing market essential banks need to step up to the plate to offer a responsible micro-loan."
"Payday loans are often used to cover the cost of daily essentials like gas and electricity bills or rent. The cap has removed some of the gamble of taking out a payday loan but it is still an expensive form of borrowing."
The FCA had shied away from a cap on payday lenders because it feared it would drive people desperate for short-term cash into the arms of illegal loan sharks. Wheatley acknowledged this was a risk: " The actual number of people who consider loan sharks or use them is very very low .... it might increase but frankly that is an illegal segment of the market and we would work very closely with other authorities to ensure that that market doesn't grow."
The FCA will publish its final rules in early November following a consultation period, with the aim of having a price cap in force from
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