Proposals for a cap on payday lending mean that, from January 2015, charges and interest on new loans must not exceed 0.8% per day of the amount borrowed.

Additionally, fixed default fees cannot exceed £15 and the overall cost of a payday loan will never exceed 100% of the amount borrowed. The proposals include when loans are rolled over.

A survey of the existing market conducted by the regulator suggests that firms are currently generating revenues of between 1% and 2% per day from borrowers.

It said it expects a price cap will have “a significant impact for many borrowers on the charges they are incurring” and could see firms lose as much as £420m in revenue per year.

The FCA’s estimates suggest consumers will save, on average, £193 per year, translating into aggregate annual savings of £250m.

FCA chief executive Martin Wheatley said: “For the many people that struggle to repay their payday loans every year this is a giant leap forward.

“There have been many strong and competing views to take into account, but I am confident we have found the right balance.

“Alongside our other new rules for payday firms – affordability tests and limits on rollovers and continuous payment authorities – the cap will help drive up standards in a sector that badly needs to improve how it treats its customers.”

From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges, Wheatley said. Someone taking the same loan for 14 days will pay no more than £11.20.

Meanwhile, for those who struggle with their repayments, the proposals ensure someone borrowing £100 will never pay back more than £200 in any circumstance.

The FCA’s key proposals:

Initial cost cap of 0.8% per day. For new loans, or loans rolled over, interest and fees must not exceed 0.8% of the amount borrowed. This lowers the costs for those borrowers paying a daily interest rate above the initial cost cap.

Fixed default fees capped at £15 – Protects borrowers struggling to repay. If borrowers cannot repay their loans on time, fees must not exceed £15. Interest on unpaid balances and default fees must not exceed 0.8% per day of the outstanding amount.

Total cost cap of 100% – Protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than the amount borrowed.