In a bid to help people stay out of debt, the government is set to put a cap on the cost of pay-day loans.
The level of the cap, which is yet to be decided, will be set up by the Financial Conduct Authority (FCA).
Chancellor George Osborne said the move would help fix “all parts of the banking and financial system”.
He went on to say that the cap would not only look at reducing the rate of interest but also the total cost to the person taking out the loan.
Speaking to BBC Radio Four’s Today programme, Osborne said: “We’ve always believed in properly regulated free markets where there is competition but consumers are protected, that’s why I have created a new consumer regulator.”
He added: “It is not just a cap on the rate of interest, I think it is important we understand that. We have got to look at all the other things that go into a loan, the arrangement fees, the penalty fees if you fail to pay the loan, the rollovers, the continuous payment authority – that’s the money coming out of people’s accounts without people knowing.”
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