Financial watchdog FCA introduces loan cap on payday lenders such as Wonga

Payday loan rates from firms such as Wonga will be capped at 0.8% a day, subject to a £15 limit on default charges and borrowers will not have to repay any more than twice what they borrowed, according to new rules announced by the Financial Conduct Authority.

Loans: the FCA has introduced 0.8% cap on payday loan firms
Loans: the FCA has introduced 0.8% cap on payday loan firms

But the loan restrictions, which come into effect in January, have been met with disdain by campaigners, who point out that the price cap plans are completely unchanged from a consultation on proposals made by the regulator in July.

Labour MP Stella Creasy tweeted that the cap for "legal loan sharks" was still "way too high".

Lenders, who had been charging as much as 5000% a year on short-term loans, have been trying to improve their image in the wake of accusations that they exploit the poor.

Wonga, which commands around a third of the payday market, recently dropped its puppet characters from its ads after they were accused of attracting children and vulnerable people.

Speaking about the new regulations, Martin Wheatley, the FCA’s chief executive, said: "I am confident that the new rules strike the right balance for firms and consumers.

If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.

"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections."

The regulations mean that interest and fees must not exceed 0.8% per day, that default fees are capped at £15 and that the total cost cap is limited to 100% of the amount borrowed.

Meanwhile, Wonga has this week agreed with the FCA to introduce more stringent lending and affordability criteria for borrowers.