Payday loan customers will see the fees and interest they pay capped from today, amid moves to stop such debts spiralling out of control.
The new rules mean people using payday lenders and other short-term credit providers will generally see the cost of their borrowing fall, and those who cannot afford to repay their debt on time will never pay back more in charges than the sum they wanted to borrow.
For all high-cost short-term credit loans, interest and fees must not exceed 0.8 per cent per day of the amount borrowed.
The Financial Conduct Authority (FCA), which oversees the industry, said the move will lower costs and ensure charges are proportionate to the size and duration of the loan.
Default fees for borrowers who fail to repay on time will be capped at £15 under the measures, which are the latest in a string of clampdowns.
The new rules mean that, for example, if someone borrows £100 for 30 days and pays back on time, they will not be charged more than £24.
Someone who borrows £100 but struggles to repay their debt will never pay back more than £200, including fees and charges.
Short-term lenders said the caps will lead to fewer people getting loans from a smaller group of lenders. They said that initially at least, the cost of a payday loan will generally be at or near the cap.
Wonga, Britain’s biggest payday lender with more than one million active customers, started capping the cost of its loans in mid-December in order to comply with the rules.
Consumer group Which? said its research suggests that in 2014, an average of 880,000 households took out a payday loan each month.
Which? executive director, Richard Lloyd, said: “Today’s crackdown on the payday lending market comes not a moment too soon. Lenders must now start competing on price and treating customers fairly.”