Clampdown on payday lenders

Tighter regulation of payday lenders could cost the industry £420m a year.

The Financial Conduct Authority (FCA) has severely tightened the rules governing payday loans after the industry's super-high interest rates and large default charges have repeatedly hit the headlines.

The FCA has proposed a cap on prices and fees of 0.8% a day (at present daily rates of 1%-2% are typical) and wants to cap fees for late payment at £15.

The proposals will cost payday lenders £420m a year, or around 42% of their £1bn combined revenues, reckoned the FCA. Meanwhile, payday lender Wonga has hired Andy Haste, previously of RSA Insurance, as its new executive chairman.

What the commentators said

Still, Haste has made a good start in steadying the ship, reckoned Pratley. For example, he has ditched the TV advertisements featuring puppet old-age pensioners.

But capping rates is a bad idea, as Ryan Bourne of the Institute of Economic Affairs pointed out. Rates are so high, because they compensate lenders for a high risk of default.

Cut them by diktat, and smaller payday lenders will go out of business. This means more people are likely to turn to loan sharks as the market shrinks and competition is reduced.

"The law of unintended consequences," concluded The Daily Telegraph, "is about to strike again."

Recommended

House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021
The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework
Investment strategy

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework

John Stepek talks to Steve Clapham, investor, analyst and author of The Smart Money Method, about the dangers in picking individual stocks and why you…
8 Apr 2021
BP looks set to return more money to shareholders as it beats expectations
Energy stocks

BP looks set to return more money to shareholders as it beats expectations

Oil major BP is to embark on a share buyback programme after significantly reducing its debts. Saloni Sardana looks at what it means for your portfoli…
6 Apr 2021
1 April 1999: The minimum wage is introduced in Britain
This day in history

1 April 1999: The minimum wage is introduced in Britain

On this day in 1999, the national minimum wage was introduced in Britain, bringing an instant pay rise to 1.9 million low-paid workers.
1 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021