Chancellor George Osborne has toughened up the regulation of payday lenders by handing the FCA new powers to cap overall costs.
The FCA will regulate the sector from next April with powers to cap interest rates as well as curbing advertising and debt collection techniques.
Osborne decided to go further last week and allow the regulator to put a cap on how much customers pay overall, including arrangement fees and penalty fees.
The Government will amend the Banking Reform Bill and the level of the cap will be decided by the FCA.
Speaking to the BBC, Osborne said: “We have got to look at all the other things that go into a loan: the arrangement fees, the penalty fees if you fail to pay the loan, the rollovers, the continuous payment authority, the money coming out of accounts without people knowing.”
Earlier this month Liberal Democrat peer Lord John Sharkey tabled an amendment to the Banking Reform Bill to create a maximum £300 payday loan.
Labour leader Ed Miliband has called for a tax on payday lenders and a ban on advertising during children’s programmes.
Which? executive director Richard Lloyd says: “We are pleased the Government is committed to taking tougher action on payday loans by capping the sky-high fees and charges that drag people down in a spiral of debt.
“This will need to be part of a wider clean up of the credit market. The Government and the FCA must clamp down on irresponsible lending and excessive fees across the board, whoever the lender.”