British payday lenders sky-high interest rates reigned in

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Britain’s financial watchdog is capping the super-high interest rates charged by so-called payday lenders in the UK.

Those are companies that offer short-term loans to tide people over until their next payday.

They have been accused of charging exorbitant fees and tipping borrowers into a spiral of debt.

Britain’s largest such lender – Wonga – charges an annual interest rate of more than 5,800 percent, according to its website.

The Financial Conduct Authority (FCA) said from the start of next year interest and fees on new payday loans must not exceed 0.8 percent per day of the amount borrowed.

Fixed default fees cannot exceed 15 pounds (19 euros) and the overall cost of a loan must not exceed the amount borrowed.

“For the many people that struggle to repay their payday loans every year this is a giant leap forward,” said Martin Wheatley, the FCA’s chief executive officer.

“For those who struggle with their repayments, we are ensuring that someone borrowing 100 pounds (126 euros) will never pay back more than 200 pounds (252 euros) in any circumstance.”

The regulator estimated consumers will save on average 193 pounds (243 euros) per year, or 250 million pounds (315 million euros) of annual savings in aggregate once the new regulation is in place.

Lenders will lose about 42 percent of their revenue, or 420 million pounds (530 million euros) per year as a result of the cap, the FCA said.

The Citizens Advice Bureau (CAB), a British charity that helps people with legal and financial issues, said borrowers needed more choice in short-term lending and called on banks to offer alternatives.

Payday lenders have grown since the 2008 financial crisis, after which banks were less willing to offer temporary overdrafts.

“Not only is the clean-up of the existing market essential (but) banks need to step up to the plate to offer a responsible micro-loan,” said CAB Chief Executive Gillian Guy.

Final details of the rules will be published in November so affected firms have time to prepare for, and implement, the changes. The impact of the cap will be reviewed in two years’ time.

with Reuters

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