As the Financial Conduct Authority proposes to stop the overall cost of a payday loan exceeding 100% of what was borrowed, Citizens Advice highlights the need for a greater choice in short-term lending and calls on banks to offer micro loans.

Citizens Advice chief executive Gillian Guy said: “Up until now, payday lenders have had the green light to send people into a spiral of unmanageable debt. High interest rates and excessive charges have made small short-term loans balloon to long term debts worth thousands.

“The cap will help limit the scale of debts but its success will depend on enforcement and is part of a raft of measures, including limiting rollovers, that the FCA must make sure lenders are sticking to.

“A payday loan cap is not the final piece of the puzzle; consumers need more choice and access to advice. Not only is the clean-up of the existing market essential banks need to step up to the plate to offer a responsible micro-loan.

“Payday loans are often used to cover the cost of daily essentials like gas and electricity bills or rent. The cap has removed some of the gamble of taking out a payday loan but it is still an expensive form of borrowing. For some people who are already struggling, instead of another loan, access to free, independent and impartial advice would help people get on top of their finances and its important lenders are pointing would-be borrowers towards this help.”