City regulator, the FCA, has laid down plans on how it will oversee the regulation of the consumer credit market, including payday loans, from April 2014.
This follows the Department for Business, Innovation and Skills survey of 4,000 borrowers undertaken over the summer findings that voluntary codes of conduct were not being met, leaving borrowers under pressure to take on more borrowing and confused by lenders’ attempts to retrieve repayments.
The consumer minister, Jo Swinson, said: “This research shows that the industry has failed to self-regulate effectively. We warned the industry months ago that if it didn’t get its house in order we would step in. Now the FCA has come out and published strong actions which will tackle the problems the market has failed to address. Too many people are being offered payday loans too easily and without really understanding the dangers if they can’t afford to pay the money back. We want to make sure that those in financial difficulty can make the right choice for them and in many cases this will mean looking for free debt advice not more debt.”
Plans to tackle the payday lending market include:
- Restricting the rollover or extension of loans to a maximum of two times and provide information on free debt advice if wishing to extend any loans,
- Preventing lenders from reclaiming funds from accounts after two unsuccessful attempts and using continuous payment authorities (CPAs) to reclaim repayments,
- Risk warnings must be provided on adverts,
- Guidance on affordability checks for lenders will become compulsory,
Although reforms are to be introduced on 1st April 2014, rules on CPAs and rollovers would not come into effect until July.
FCA chief executive, Martin Wheatley, said: “We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don’t want to stop that happening. But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower’s account. That is why we’re imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities.”