Loan shark fear

Borrowers are at risk of falling into the hands of loan sharks because of "severe restrictions" on payday lending, says the Consumer Finance Association (CFA).

Russell Hamblin-Boone, chief executive of the Consumer Finance Association (which represents lenders), said: "Our analysis of hundreds of thousands of loan applications proves that borrowers are being excluded from credit and concerns are growing for how they are filling the gap in their finances."

Debt charities disagree with the CFA's view, arguing that the new regulations have reduced the likelihood of vulnerable borrowers being pulled into spiralling debt.

Gillian Guy, chief executive of Citizens Advice, said: "High-cost credit is not the answer to financial difficulties.

"All too often payday lenders were lending to people to who could not afford to repay. The 53% decrease in payday loan issues reported to Citizens Advice shows the new regulations are having a positive effect for consumers."

The Financial Conduct Authority (FCA) set a cap on the cost of payday loans of 0.8% of the amount borrowed per day, which came into force in January.

In addition, there is a £15 cap on default charges. No borrower has to pay back more than twice the amount they initially borrowed, lenders can no longer roll over a loan more than twice, nor can they attempt to reclaim payment from a borrower's account more than twice.