>In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending
source?
>and concluded that "fair" maximum charges were interest rates of 0.8% per day
"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?
>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?
Martin Wheatley, the FCA's chief executive officer, said:
'I am confident that the new rules strike the right balance for firms and consumers. 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. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.'
source?
>and concluded that "fair" maximum charges were interest rates of 0.8% per day
"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?
>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?