Under new rules announced by the Government today payday loan lenders will face limits on the amounts they can charge borrowers.
The cap on the cost of payday loans, the level of which is yet to be decided by the Financial Conduct Authority, will be included in the Banking Reform Bill that is currently making its way through Parliament.
In a statement, Chancellor George Osborne said the payday loan industry will face controls over the interest rates charged to borrowers, as well as arrangement and penalty fees.
The news follows months of campaigning by debt charities and consumer groups, with Citizens Advice's latest research showing 62% of payday loans still come without proper checks to assess whether a borrowers can afford to repay.
On top of this, the charity discovered that three out of four borrowers found it difficult to repay their loan, while in 84% of cases payday lenders broke their promise to freeze interest and charges for those who said they were struggling.
"Citizens Advice has always been clear that any cap on payday loans must be a cap on the total cost of credit," said the charity's chief executive Gillian Guy.
"Limiting interest rates alone would allow lenders to pile on excessive costs elsewhere, so the Government is spot on in deciding to tackle the overall cost."
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