For starters, what are payday loans?

The payday loan market is growing rapidly in the United Kingdom. In a nutshell, payday loans are short term loans for small amounts of money. They are available on internet sites and although they are very simple to obtain, the interest rates can be ridiculously high. The typical charge in the UK is £25 per month for every £100 borrowed.

The Chancellor of the Exchequer, George Osborne has recently announced the government will legistlate to introduce a cap on the cost of payday loans. The level of the cap has not yet been disclosed and will be announced by the new industry regulator, the Financial Conduct Authority (FCA). The cap will be formally established through amendments to the Banking Reform Bill which is currently going through Parliament.

Treasury officials have claimed the government have always kept the case for a cap under review as the market evolved over the years. With increasing evidence of the effects in support of a cap from other countries, such as Australia, the government ready to support the move.

George Osborne has said:

We’re going to have a cap on the total cost of credit – we’re looking at the whole package, not just the interest fee, but also the arrangement fees as well as the penalty fees. This is all about having a banking system that works for hardworking people and making sure some of the absolutely outrageous fees and unacceptable practices are dealt with. It’s all about the government being on the side of hardworking people.