A cap on the fees and interest charged by payday lending firms is to go ahead in January in a move designed to protect borrowers from escalating debts.

The Financial Conduct Authority (FCA) said default fees will be capped at £15 alongside a limit of 0.8 per cent per day on interest on unpaid balances in order to ensure that those who cannot repay on time will never have to pay back more in charges than the amount borrowed.

The latest clampdown on the industry was unveiled by the FCA in July and confirmed today following a consultation period.

FCA chief executive Martin Wheatley said: "I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.

"For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts.

The FCA said that from January 2 someone taking out a loan for 30 days and repaying the debt on time will not pay more than £24 in fees and charges per £100 borrowed.

The moves have been welcomed by consumer groups, although the industry has raised concerns that the crackdown will limit choice for borrowers who may be forced to turn to loan sharks or lenders operating outside the UK.

The FCA estimates that 7 per cent of current borrowers will now no longer have access to payday loans - some 70,000 people - as a result of the payday cap.

It said: "These are people who are likely to have been in a worse situation if they had been granted a loan. So the price cap protects them."