The Financial Conduct Authority (FCA) said on Monday that a review of its payday loan price cap, first introduced in 2015, found that 760,000 borrowers are saving a total of £150 million per year. The average cost of a high-interest, short-term loan has fallen from over £100 to around £60, the FCA said.
High-interest, short-term loans — dubbed "payday loans" as people often took them out to cover shortfalls until payday — boomed in the wake of the 2008 credit crisis.
The Office of Fair Trading, which regulated the industry until 2014, found that this type of lending caused "hardship and misery" for many borrowers who were saddled with unaffordable debt. While loans were short-term, interest could be up to 5,000% if calculated annually. Labour's Stella Creasy and the Archbishop of Canterbury were among the public figures who campaigned against the sector.
The FCA took over regulation of the industry in 2014 and cracked down on the sector. Firms in the industry have been ordered to repay more than £300 million in unaffordable lending and fines since then and 1,400 lenders have gone out of business since then.
The FCA said Monday it has found that the cap, which limits daily interest to 0.8%, means firms are much less likely to lend to customers who can't afford to repay. Debt charities are also seeing fewer clients with debt problems linked to high-cost short-term credit.
As a result, the FCA is leaving the price cap in place and will review the policy again in 2020.