New law to cap 'overall' cost to customers for payday loan

George Osborne, the chancellor has announced the government will impose a cap on the fees payday lending companies can charge. Although the meaning of `fees' is not fully clear.

The chancellor swiftly gave out plans to impose a ceiling on the overall costs, which could limit the price of a loan to around 70 per cent over a full year.

Wonga and other payday loan firms are to have their charges capped by law after an outcry at sky-high loan rates of 1,000 per cent or more.

Though the details will be decided later yet the Treasury was impressed by new laws in Australia which cap the monthly interest rate at four per cent and set a maximum upfront fee of 20 per cent.

Eyebrows were raised due to the timing of the move. Just weeks ago the Government initiated a consultation that is yet to report, and former Treasury minister Mark Hoban once emerged to rule out a cap.

Mr Osborne declined a U-turn saying:  "Labour were in office for 13 years, Ed Balls and Ed Miliband ... they did absolutely nothing." Osborne insists this is less a U-Turn, more a `logical step'.

The Chancellor complimented Stella Creasy, Walthamstow MP for campaigning on this issue but said it was "fanciful" for the party's leadership to claim any credit.

"The philosophy is we want markets that work for people, and people who believe in the free market, like myself, want that free market to be properly regulated." He added.