From this week, payday lenders will have to limit their interest rates and charges, with a cap applying to finance contracts worth up to $2000 that run for less than two years. There is a limit of 20 per cent on any upfront charge and a limit of four per cent on monthly charges.Lenders will not be allowed to refinance small-amount contracts. The aim is to stop debt rolling over and compounding.For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent.Lenders will be required to inform customers of other finance options, such as Centrelink advances, no-interest and low-interest loan schemes run by community organisations, and the availability of hardship programs run by credit providers and utilities.The introduction of interest rate caps is the second piece of regulation directed at the payday lending industry this year. Under provisions introduced in the Consumer Credit Legislation Amendment (Enhancement) Act 2012, providers of small-amount credit contracts must review clients' bank statements for the previous 90 days to verify their income. Loans with terms of less than 16 days are prohibited, unless it is an authorised deposit-taking institution offering a continuing credit contract.A loan will be presumed to be unsuitable if the applicant is in default under another small-amount credit contract or has been a debtor under two or more small-amount credit contracts within the previous 90 days.If a borrower receives 50 per cent or more of their gross income from Centrelink, no more than 20 per cent of their income can be allocated to loan repayments.