The new rules will come into force in January, the FCA says
A cap on the amount that payday lenders can charge their customers has been announced by the City regulator.
Payday loan rates will be capped at 0.8% of the amount borrowed a day, said the Financial Conduct Authority (FCA).
In total, no one will have to pay back more than twice what they borrowed, and there will be a £15 cap on default charges.
The loan restrictions will start from January, the regulator said.
"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts," said FCA chief executive Martin Wheatley.
"For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections," he added.
The price cap plan - which includes both interest and fees - remains unchanged from proposals the regulator published in July.
The confirmed measures will see:
• Initial cap of 0.8% a day in interest charges. Someone who takes out a loan of £100 over 30 days, and pays back on time, will therefore pay no more than £24 in interest
• A cap of £15 on the one-off default fee. Borrowers who fail to pay back on time can be charged a maximum of £15, plus 0.8% a day in outstanding interest
• Total cost cap of 100%. If a borrower defaults, the interest on the debt will build up, but he or she will never have to pay back more than twice the amount they borrowed
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said the payday loans industry had already put in place higher standards of conduct.
"We've restricted, for example, extending loans, rolling over loans, [and] we've got tighter checks on people before we approve loans," he told BBC Radio Four's Today programme.
"This [cap], if you like, is the cherry on a rather heavily-iced cake," he said.
The industry was expected to shrink as a consequence of the cap, which could make people vulnerable to loan sharks, he added.
"We'll inevitably see fewer people getting fewer loans from fewer lenders," Mr Hamblin-Boone said. "The fact is, the demand is not going to go away. What we need to do is make sure we have an alternative, and that we're catching people, and that they're not going to illegal lenders."
Mr Wheatley, of the FCA, said that the regulator's research had shown that 70,000 people who were able to secure a payday loan now would not be able to do so under the new, stricter rules. They represent about 7% of current borrowers.
However, he disputed the industry's view that many of these people would be driven into the arms of illegal loan sharks. He said most would do without getting a loan, some would turn to their families or employers for help, and only 2% would go to loan sharks.
He added that he wanted to see a responsible, mature industry for short-term loans.
Gillian Guy, chief executive of Citizens Advice, said: "People who are in a position to borrow need a responsible short-term credit market. A vital part of this is greater choice. High street banks should seize the opportunity to meet demand and offer their customers a better alternative to payday loans.
"The FCA should monitor the cap, including whether it is set at the right level, to make sure it is working for consumers. They must also keep a close eye on whether lenders are sticking to the rules."
BBC News UK
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