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New paydays loans rules from 2 January 2015 explained

Tuesday, 6th January 2015

New payday loan rulesAs from 2 January 2015 all payday lenders must adhere to new rules forced upon them by the city regulator, Financial Conduct Authority (FCA). The new regulation is designed to protect borrowers and has already had a huge impact on the payday industry with the FCA predicting the market should reduce by around 42%.

What the new rules means to the lender

A payday lender can;

  • charge a maximum of 0.8% of the total amount borrowed a day. This includes both interest and any other fees
  • charge a maximum £15 for late payment
  • charge no more than 100% of the amount borrowed in fees and interest irrespective of the charges applied by the lender or however long the debt lasts.

What the new rules means to the borrower

If you borrow £100 and after;

  • 30 days you pay on time then you will pay in total £124
  • 30 days overdue then you will pay £15 default fee, £48 interest and £3.60 interest on default fee making a total of £166.60
  • 90 days overdue then you will pay £15 default fee, £96 interest and £10.80 interest on late fee, making a maximum £200 you will ever have to pay back. Source FCA

Application of the cap to loans made before January 2015

The FCA has adjusted the rules so that if a high-cost short-term credit (HCSTC) agreement, such as a payday loan, is modified after 2 January 2015, charges imposed before 2 January must be taken together with charges imposed after that date for the calculation of the cap. Full FCA press release here

Alternative form of borrowing?

Why not think about a Credit Union, see our Credit Unions - The top 10 key Q&As 

Related reading

Warning! One payday loan rockets to £20,000

Police Officer stole from colleagues to meet payday loans

How a £1,000 Payday Loan or Credit Card debt can now easily be secured on a debtor’s home

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