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Payday loans cap 'is welcome - but not magic wand'

Citizens Advice Scotland have welcomed the proposal of a cap on the cost of payday loans.

The Financial Conduct Authority has today proposed a cap of 0.8% per day, alongside a principle that nobody should have to repay more than double the amount they borrowed. 

Citizens Advice Scotland's Head of Policy Susan McPhee says,

"We have been calling for a cap for some time, as one of the main actions that is needed to protect consumers from falling into crisis debt.

"Every week now the Scottish CAB service sees 100 new cases of people who are in unmanageable debts to payday lenders. And our research has shown that lenders are not cleaning up their own act, so there is no doubt that tighter controls are necessary.

"So we welcome this proposal, and we commend the FCA for the effort that has gone into developing it. We are particularly pleased that they are looking at capping the total cost of borrowing, not just interest rates. This was one if the main things we asked for.

"What consumers want from lenders is choice, clarity and security. They want to be able to borrow what they need at a rate that is fair and clear, with no nasty surprises later when they have to repay. A cap will go some way to providing that.

"However, this is not a magic wand. We need to examine the detail of the proposal and then monitor its impact in practice. And there are other steps that need to be taken to protect people from the misery of debt that we see so often in CAB clients – including greater choice in the market, and measures to make sure all lenders are following the guidelines the industry itself has signed up to.

"The high cost of short-term lending causes huge problems for many people - and particularly those on lowest incomes who are hit disproportionately by such charges.

"We need to make sure we do everything we can to create a fair lending market which offers choice to consumers, a reasonable profit for responsible lenders and protection for the most vulnerable."

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