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Britain approves cap on fees, interest for payday lenders

12 November 2014, 08:17

London - Britain will impose curbs on so-called "payday lending" firms from January after a boom in the short-term loans industry characterised by "bad behaviour", the Financial Conduct Authority regulator said on Tuesday.

The government body said in a report that default fees would be capped at 15 (19 euros, $24) and there would be a limit of 0.8 percent per day on interest on unpaid balances.

People who cannot repay in time will never have to pay back more in charges than the amount borrowed, the FCA said.

"The way the industry grew up is with lots of bad behaviour," the agency's chief executive Martin Wheatley said.

Payday loans are a form of short-term consumer credit granted with little or no guarantee and at high interest rates. The business expanded in Britain during the economic crisis.

The FCA estimates that seven percent, or around 70,000, of people currently using the loans would no longer be given credit because payday lenders would judge the loans as too high risk under more stringent rules.

Wheatley said the changes "may" spell an end for the industry, although he said the FCA estimated there would still be "a few" companies "but much less than today".

He said banks had a "responsibility" to lend and that more use should be made of credit unions instead of payday lending companies.

The new restrictions were welcomed by consumer groups who have warned about escalating debts, although industry players said it could force people into the hands of underworld loan sharks.

The sector is currently worth around 2.8 billion.

But the number of loans and the amount borrowed has dropped by 35 percent since the FCA took over regulation of consumer credit earlier this year and announced sweeping changes.

Wonga, the industry leader, last month said it would write off 220 million in loans for 330,000 clients who were not able to repay them.

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