Pay Day Loan Cap

Extending payday loan cap could stop thousands getting into spiral of debt

New research from Citizens Advice shows that extending the same rules that cover payday loans to the doorstep lending market could prevent their customers getting into problem debt, and save up to £123 million in interest payments on up to 540,000 loans each year.
It is calling on the Financial Conduct Authority (FCA) to give consumers the same protections as payday loan customers by including home credit in its definition of high-cost short-term credit when it publishes its proposals for the high-cost credit market in the Spring. This would protect consumers by:

  • Limiting the number of times each loan can be refinanced
  • Ensuring they never repay more than twice what they borrowed. Home credit is the most common form of high-cost credit problem Citizens Advice deals with, with lenders charging interest rates of up to 1557%. Its new ‘Doorway to Debt’ report reveals the people it helps with issues relating to these loans are more likely than its average debt clients to have a long-term health condition or be behind on essential household bills.

Of the estimated 30,000 people Citizens Advice helped with home credit debts in the last year:

  • Nearly half (48%) have a long-term health condition or disability. This is higher than for all debt clients (40%) and more than twice the rate amongst the general population (18%).
  • Only 32% are in employment. While lower than for Citizens Advice debt clients generally (40%), it is almost half that of the general population (62%).
  • Half of clients are in council tax arrears and 43% are behind on water bills
  • Clients with home credit debts have unsecured debt totalling nearly half (49%) of their annual income
  • 1 in 10 have more than £2,500 in home credit debt, and a third (34%) had outstanding debt on two or more home credit loans.

Citizens Advice is concerned that irresponsible lending and the increased cost of borrowing due to refinancing is pushing home credit users into a spiral of debt. Its modelling found consumers end up paying back more than twice what they borrowed on up to 490,000 home credit loans each year due to refinancing.

More than 1.6 million people use home credit loans in the UK, making it one of the largest high-cost credit markets. By changing its definition of high-cost short-term credit to include home credit, the FCA would give these consumers the same protections as payday loan customers – a move which has seen a dramatic reduction in the number of people coming to Citizens Advice for help with payday loan problems.

Citizens Advice evidence also suggests some lenders are failing to protect consumers when proper affordability checks are not carried out. It is also asking the FCA to introduce rules and give high-cost credit providers clarity about what these checks should include to prevent people from being lent money they cannot afford to repay.

For example, one person with severe learning disabilities came to Citizens Advice with home credit debts of £3016, The lender offered their client further credit despite being advised by their social worker that an appropriate adult needed to be present for financial decisions,.

Gillian Guy, Chief Executive of Citizens Advice said:

“There’s no questioning the evidence – the FCA’s cap on payday lending has been a success. But it’s time now to address the problems consumers are facing in the home credit market.

“Home credit customers need to be protected from getting into problem debt. They are susceptible to the high cost of these loans because of easy refinancing – and there is currently no total limit on what they repay.

“The FCA should build on the success of the payday loan cap and extend their definition of high-cost short-term credit to include home credit, making sure that no-one pays back more than double what they borrow.”


I always find the people at the Citizens Advice more than helpful. They go out of their way to deal with distressed and confused people in a compassionate and sensitive way. Citizens Advice is a wonderful service – long may it last.

John – January 2024

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