A cap has been put in place to limit the amount that payday lenders can charge their customers by the City regulator.
The loan cap will help protect lenders
Payday loan rates will be capped at 0.8% of the amount borrowed a day, said the Financial Conduct Authority (FCA) and this will come into place January 2 2015.
The watchdog said that would lower costs for most borrowers, explaining that for all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.
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 FCA said the rate cap will mean someone paying no more than £24 interest on every £100 they borrow over 30 days.
"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts," explains FCA chief executive Martin Wheatley to the BBC.
"For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections," he adds.
The FCA said it now estimated that 7% of current borrowers may not have access to payday loans - some 70,000 people - after its new reforms take effect.
It added: "These are people who are likely to have been in a worse situation if they had been granted a loan. So the price cap protects them."
So what can you do during this busy, expensive time as Christmas approaches?
Caroline Rookes, Chief Executive at Money Advice Service explains: "The important changes by the FCA mean that an estimated 70,000 people will be unable to take out a payday loan in the New Year. If you're planning on taking out a payday loan to clear your Christmas debts, which can be especially tempting at this time of year, you may be turned away. So I'd encourage people to think very carefully about their Christmas spending plans.
"If you're worried about your finances and think you might need a payday loan there are plenty of places you can turn for free debt advice. Our debt advice locator -www.moneyadviceservice.org.uk/debt - can help you find the best and nearest debt advice to where you live.
"In addition, we have a specially designed Christmas budget planner that can help you work out exactly what you are planning to spend over the festive season -https://www.moneyadviceservice.org.uk/en/tools/christmas-money-planner.
"The Money Advice Service hopes that today's announcement leads to higher standards among payday loan companies, and a better deal for consumers."
FCA chief executive Martin Wheatley said: "If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts."
Do you think the cap is a good move?
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