The amount that payday loans companies can charge their customers will be capped, according to plans revealed by the Financial Conduct Authority (FCA).

Payday loan rates will be capped at 0.8% a day and customers will never have to pay back more than twice what they borrowed.

There will also be a cap on default charges, which is likely to be set at £15.

Payday lenders are estimated to lose £420m a year as a result of the changes, representing 42% of their revenue.

This has led business leaders in the industry to suggest that there will be an excess demand and that customers will turn to loan sharks or foreign lenders as an alternative.

They point to Australia as an example. Russell Hamblin-Boone of the Consumer Finance Association told the BBC:

“The evidence from other countries is that people either turn to illegal lenders – the back-street loan sharks – or more likely, they’ll go to online lenders who are operating outside of the UK.”

The FCA admitted that the changes would likely force some payday lenders out of business and that some customers would not be able to get the loans they did previously.

However, they all said that it was worth it to protect customers from “excessive” charges.