New Zealand's pay day lending market is likely to shrink substantially under proposals by the Government to introduce a daily interest rate cap of 0.8 per cent and high-risk borrowers could find themselves out of luck.

Commerce and Consumer Affairs Minister Kris Faafoi announced on Tuesday the Government would add the cap to its proposals for overhauling the Credit Contracts Legislation Amendment Bill after submissions to the finance and expenditure select committee repeatedly called for an interest rate cap.

The cap is in addition to the proposal to limit interest and fees over the life of a loan to 100

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