The Financial Conduct Authority has branded a claim that it will be raising the price cap on payday loans as "complete fiction".
The regulator rubbished the claim, which appeared on the website of loans intermediary Quick Loans, and has said it is still reviewing the cap.
Brought in on 2 January 201, the cap means people will never have to pay back more than double what they originally borrowed from a payday loan lender. Quick Loans has claimed that information regarding the raising of the cap was revealed to it by "industry insiders".
To be clear, we don't like payday loans and most people who get them shouldn't. Yet if you're considering one, ensure you can protect yourself. Firstly, consider cheaper alternatives, using our guide, and if that fails we'll take you through the least nasty of a bad bunch. See our Payday loans best buys? guide.
Martin: 'Relaxing the price cap would be a travesty'
MoneySavingExpert.com founder Martin Lewis says: "I'm delighted to hear that the cap on payday loan lenders isn't going to be increased.
"This would be a travesty when we have finally managed to get the payday loan industry under control and we've stopped seeing ads which normalise this disgusting type of loan.
"Remember, many people who borrow the loan will have to repay it the next month and can't afford to do so.
"However, if it turns out the FCA is denying it just because it won't talk about it, and Quick Loans is right and we do see the cap rise as part of the high-cost short-term credit price cap review, the FCA will have a lot of questions to answer about the information leaked and why it denied it."
What is the price cap?MoneySavingExpert had campaigned for the payday loan price cap, and wanted it to be lower. Here's how it currently works:
- Initial cost cap of 0.8% per day: Interest and fees must not exceed 0.8% of the amount borrowed on new loans and loans rolled over per day.
- Fixed default fees capped at £15: If borrowers cannot repay their loans on time, fees must not exceed £15. Interest on unpaid balances and default charges must not exceed the 0.8% rate.
- Total cost cap of 100%: Borrowers must never have to pay back more in fees and interest than the amount borrowed.
The caps mean someone taking out a loan for 30 days and repaying on time won't pay more than £24 in fees and charges per £100 borrowed. If you paid it back late, the maximum you'd be charged is £15, while the most you could repay in fees and interest on this £100 loan would be £100.
The Financial Conduct Authority (FCA) review is part of a commitment to look at high-cost credit areas, such as overdrafts, with findings expected to be published later this summer.
What do Quick Loans and the FCA say?
Quick Loans published an article on Sunday claiming it had decided to return to lending as the FCA was to relax the price cap.
Among other claims in the article, it said industry insiders had told it the initial cost cap over 30 days per £100 borrowed would be raised from £24 to between £32 and £36 on 1 January 2018, and the total cost cap would be increased from 100% to 200%.
In response, the FCA released a statement insisting: "This article is complete fiction and does not reflect our position."
A spokesperson added: "The FCA's review of high-cost credit, including the effects of FCA regulation on the payday lending market, is continuing and we will publish a feedback statement later in the summer setting out our views and next steps."
When pushed on which parts of the article were "complete fiction", and specifically whether the regulator had made any decision to increase the initial or total cost cap, the spokesperson said only: "The whole thing is complete fiction and doesn't reflect our position."
Quick Loans posted a "clarification" yesterday saying the main focus of the original article was its return to lending, and said it was unclear which parts of the article the FCA believed were "complete fiction". It said it "stood by" its source and claimed "it is industry common knowledge that the cap is rising".