The UK payday loan market has undergone a dramatic transformation over the past decade. Once dominated by aggressive lenders charging sky-high interest rates, the industry is now tightly regulated under rules enforced by the Financial Conduct Authority (FCA). The introduction of the FCA’s cost cap in 2015 marked a turning point, bringing much-needed protection to consumers and reshaping how short-term credit operates in the country.
This article explores how the FCA cap changed payday lending in the UK—what it covers, why it was introduced, and how it continues to protect payday loans uk today.
The Problem Before Regulation
Before the FCA stepped in, payday lending in the UK was largely unregulated. Lenders often charged excessive interest rates—sometimes exceeding 4,000% APR—and many borrowers found themselves trapped in a cycle of debt.
Customers struggling to repay loans were frequently encouraged to roll them over, adding new fees and interest each time. In extreme cases, borrowers ended up paying back several times more than they originally borrowed.
Wonga, one of the largest payday lenders at the time, became a symbol of the industry’s excesses. Complaints about irresponsible lending and unaffordable repayment plans surged, prompting government action.
The FCA Takes Control
In April 2014, the Financial Conduct Authority took over regulation of consumer credit from the Office of Fair Trading (OFT). The FCA immediately imposed strict rules on payday lenders, requiring them to assess affordability, treat customers fairly, and provide clear information about costs.
But the most significant reform came in January 2015, when the FCA introduced the price cap on high-cost short-term credit (HCSTC)—commonly known as the payday loan cap.
What the FCA Cap Covers
The FCA’s cap places firm limits on what payday lenders can charge borrowers. It includes three key rules:
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Daily Interest Rate Cap – Lenders can charge no more than 0.8% interest and fees per day on the amount borrowed.
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Default Fee Cap – If a borrower misses a payment, the lender can charge a maximum default fee of £15.
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Total Cost Cap – No borrower can ever be required to repay more than 100% of the amount borrowed. In other words, if you borrow £100, you can never owe more than £200 in total.
These caps apply to all high-cost short-term loans, including payday loans, instalment payday loans, and other similar credit products.
The Impact on Borrowers
The FCA cap has significantly improved consumer protection and reduced financial harm. According to FCA reviews, since the cap was introduced:
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The number of payday loans issued has dropped by more than half.
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Many irresponsible lenders have exited the market or gone out of business.
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Borrowers are paying far less in interest and fees than before.
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Complaints about payday lenders have fallen as affordability checks have become stricter.
For example, a borrower who might once have paid £75 in fees for a £100 loan now typically pays less than £25.
The Impact on Lenders
While borrowers benefited, the new rules also reshaped the lending industry. Dozens of payday loan firms, including Wonga, The Money Shop, and QuickQuid, collapsed after the cap made their business models unsustainable.
Today, only a smaller number of regulated payday lenders remain, operating under tighter compliance and affordability standards. The FCA continues to monitor the market closely, ensuring that lenders prioritise fair treatment and transparency.
