In February 2014,the FCA produced final rules for consumer credit firms, setting out the standards they have to meet to continue doing business. The new rules included requirements for risk warnings on financial promotions, restricting the use of continuous payment authorities, and limiting the number of times a loan can be rolled over to twice.

Over the last six months the FCA has gathered evidence which finds that excessive charges for high cost short term credit (HCSTC) are harming significant numbers of consumers.

The FCA has now published Consultation Paper 14/10: Proposals for a price cap on high-cost short-term credit (CP14/10). The FCA’s key proposals for payday lenders are as follows:

  • initial cost cap. For new loans, or loans rolled over, interest and fees must not exceed 0.8% per day of the amount borrowed;
  • fixed default fees. Fixed default fees capped at £15 to protect borrowers who are struggling to repay; and
  • total cost cap. Borrowers should only ever expect to pay twice the amount borrowed in the worst case scenario to avoid amassing crippling and never ending debts.

The FCA also considered whether to widen the scope of the price cap to include other forms of HCSTC that are currently excluded in the definition contained within the Handbook. At this stage the FCA has decided not to widen the scope.

The FCA has also published technical annexes to CP14/10 which look at the impact of the cap on HCSTC supply, competition and demand.

The deadline for comments on CP14/10 is 1 September 2014. The FCA intends to publish its final rules in November 2014 in advance of the price cap coming into effect on 2 January 2015.

The FCA plans to carry out a review of the price cap in two years’ time and will continue to review whether it should impose a price cap on other products.

View Consultation Paper 14/10 – Proposals for a price cap on high-cost short-term credit, 15 July 2014

View Consultation Paper 14/10 Technical Annexes supplement, 15 July 2014

View Online response form, 15 July 2014