More help for payday loan debtors
- 24 May 2012
- From the section Business
Payday lenders have agreed to new commitments designed to prevent a build-up of unmanageable debts by struggling customers.
Lenders will freeze charges and interest for borrowers in difficulty, no later than 60 days after they stop making payments.
Borrowers would also have the charges frozen as soon as they managed to agree an acceptable repayment plan.
New measures would be in place by 25 July, trade bodies told the government.
Lenders have also promised to make proper affordability checks before granting loans or allowing customers to put off paying the money back.
"Payday loans should only ever be used as a short-term financial stop-gap, not as a long-term solution to financial difficulties," said Business Minister Norman Lamb.
"I would urge people to think carefully before taking out a short term loan and to consider affordable alternatives, such as their local credit union."
The trade associations that signed up to the agreement represent about 90% of the payday lending industry. Some of its members already offer some of the agreed safeguards.
"These new commitments will go further than current statutory regulation and deliver important new rights for customers of lenders," said a spokesman on behalf of the trade associations.
"These include better communication, clearer information about price and payment, appropriate affordability assessments and practical help for those in financial difficulty."
The trade bodies are the Consumer Finance Association (CFA), the Finance & Leasing Association (FLA), the British Cheque & Credit Association (BCCA) and the Consumer Credit Trade Association (CCTA).
Groups representing consumers have welcomed the move, but encouraged the government to keep up the pressure.
Delroy Corinaldi, of the Consumer Credit Counselling Service, said: "We call on the minister to keep the pressure on payday lenders and their trade associations to ensure that they produce improved codes that genuinely make a difference to business practices on the ground.
"Actions must now follow words. If they do not, there will be an overwhelming case for tough regulatory action."
The Office of Fair Trading is currently studying the payday lending industry.