People using payday lenders are to see the cost of borrowing fall significantly under a crackdown announced by the financial regulator today.

The Financial Conduct Authority's proposals for a cap on payday lending mean that from January interest and fees on new loans, including those rolled over, must not exceed 0.8% per day of the amount borrowed.

The watchdog said that those who borrow £100 for 30 days and pay back on time will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20.

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Under the proposals, fees for borrowers who cannot repay their loans on time must not exceed £15 and they must never have to pay back more in fees and interest than the amount borrowed.

It means that someone struggling with repayments on a £100 loan will never pay back more than £200 in any circumstance.

The FCA estimates that consumers will save on average £193 per year through the measures, translating into £250 million annual savings overall. The price cap is set to cost the industry about £420 million in lost revenues.

FCA chief executive Martin Wheatley said: "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."

Last year, 1.6 million consumers took out 10 million loans, with a total value of £2.5 billion. The average loan has a principal of around £260 lent over an initial duration of 30 days. The average number of payday loans taken out by a customer last year was six.