Payday lenders face tougher rules

Money Payday lenders have given the plans a guarded welcome

Related Stories

The UK's payday lenders have been warned that tougher regulation is on its way, to protect consumers.

The Financial Conduct Authority (FCA) has proposed that all borrowers should have an "affordability" check before being given a loan.

Among other new rules, the FCA wants to put risk warnings on adverts and marketing material.

The payday industry gave the plans a guarded welcome, saying irresponsible lenders would struggle to comply.

Martin Wheatley, the FCA's chief executive, said: "Today I'm putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking."

The proposals mean that anyone taking out a loan would need to prove that they could afford to repay it.

In a separate government survey, one in five customers said they were not even asked about their finances when they applied for a payday loan.

Crackdown

Among other proposals, the FCA suggested that:

  • Lenders will not be able to extend, or "roll over", loans more than twice
  • The number of attempts a payday lender can take money out of a borrower's account using a Continuous Payment Authority (CPA) should be limited to two
  • Anyone extending a loan should be told about free debt advice
  • The FCA could order lenders to change misleading adverts, or drop products that are not in the best interests of consumers.

The FCA said it did not want to stop people using payday lenders, as they might turn to illegal loan sharks instead.

"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," said Mr Wheatley.

Business Minister Jo Swinson said the new rules would "call time on unscrupulous payday lenders". She said the industry had "failed to self-regulate effectively".

Business Minister Jo Swinson says "tough" new rules on payday lenders are "very much welcome"

"We warned the industry months ago that if it didn't get its house in order we would step in."

The FCA said the risk warnings to be attached to adverts would be similar to those used by mortgage lenders, which remind borrowers that their home may be repossessed if they fall behind with payments.

Reimbursements?

After the FCA takes over as the new regulator for consumer credit, in April 2014, it will also consider whether to put a cap, or limit, on the interest rates that lenders can charge.

The government has decided against such a cap for the moment, but does not want to rule it out in the future.

Previously the FCA has also said it will consider making rogue payday lenders reimburse customers where necessary.

It has also said it might close firms down overnight if it needs to.

The current regulator, the Office of Fair Trading (OFT), wrote to 50 payday lenders earlier this year to see if they were suitable to continue in business.

Nineteen lenders withdrew from the market as a result.

A further six companies have stopped offering payday loans since, or have had their licences suspended by the OFT.

But the FCA said that, despite the OFT campaign, the industry was still failing to respond.

Raising standards

Despite 25 companies leaving the payday loans market, it is thought there are still more than 200 firms offering short-term loans within a matter of minutes.

Many belong to the Consumer Finance Association (CFA).

Under the CFA's code of conduct, roll-overs are permitted three times only.

If borrowers default on their repayments for longer than 60 days, the amount they owe is frozen.

"As major lenders in the mainstream market, CFA members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards," said Russell Hamblin-Boone, the CFA's chief executive.

He added that the FCA's proposals were "an opportunity to set a bar over which irresponsible lenders will struggle to jump".

The public consultation on the FCA's proposals will be open until 3 December.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    BANKING ETHICS 07:03: Radio 5 live

    Control Risks' Charles Hecker on Wake Up to Money pulls together the two big topics of the morning - Russia and banking ethics. He says it's the ethics that attract them: "There is a reason why the British banking sector is by a mile the preferred destination for Russian financial transactions. It's seen as transparent and liquid market that is well regulated and is seen as clean." And they also like the flight time and the restaurants, he says.

     
  2.  
    UBS RESULTS 06:53:
    The logo of Swiss bank UBS

    Swiss bank UBS reports second quarter net profit of 792m Swiss francs (£516m), up from 690m francs last time. Results were whacked last year by a $885m settlement with the US housing regulator over the mis-selling of mortgage-backed bonds. The bank has still had to set aside 254m euros (£165.4m) this year, mainly to settle legal claims that it helped wealthy Germans to dodge taxes.

     
  3.  
    RUSSIAN SANCTIONS 06:41: BBC Radio 4

    In case you were wondering why sanctions were back on the news menu, last week, European leaders agreed there should be tougher sanctions on Russia after Ukrainian separatists brought down Malaysia Airlines MH17. This week they decide what sanctions should be applied and against whom or what.

     
  4.  
    BANKING ETHICS 06:31: Radio 5 live
    Triumph of Virtue and Nobility

    Would getting bankers to swear an oath promising good behaviour work? That's a suggestion by one think tank, ResPublica. It wants to introduce "Virtuous Banking". But the chairman of the Banking Standards Review Council, Sir Richard Lambert, tells Wake Up to Money an oath won't help to bring that about.

     
  5.  
    GAS GUZZLER 06:21:
    Mayor of London Boris Johnson

    London mayor Boris Johnson wants the drivers of diesel cars to pay an extra £10 - on top of the congestion charge it should be noted - for the pleasure of driving into the centre of the capital according to a report in the Daily Mail today. Other cities are also considering introducing low-emission zones to crack down on diesel fumes. These cars were once encouraged as being less polluting...

     
  6.  
    RUSSIAN SANCTIONS 06:08: Radio 5 live

    More from Charles Hecker. He tells Wake Up to Money: "I don't think anybody is that keen on sanctions that are going to impact on their own economic sectors." Part of the problem with European sanctions against Russia is the French have defence deals with Russia, there is a substantial amount of Russia money in the UK's financial services sector and Germany has energy deals with Russia, he adds

     
  7.  
    RUSSIAN SANCTIONS 06:01: Radio 5 live

    Charles Hecker of consultancy Control Risks tells Wake Up to Money targeted sanctions, whether against sectors of the Russian economy or against individuals, would have a potential impact and suggests the Russian economy is already teetering on the edge of recession. But he adds both Cuba and Iran have been subject to far more stringent sanctions and that further sanctions against Russia are unlikely to change the country's behaviour.

     
  8.  
    06:00: Rebecca Marston Business reporter, BBC News

    Yes, we're back. And we're here: bizlive@bbc.co.uk @bbcbusiness - should you wish to get in touch.

     
  9.  
    06.00: Matthew West Business Reporter

    Morning everyone. Yesterday afternoon we had a £218m fine for Lloyds for its part in the 2012 Libor scandal, while the think-tank ResPublica has suggested this morning bankers should take an oath - a bit like doctors - to fulfil their "proper moral and economic purpose". We also have second quarter trading updates from BP and Next this morning, plus more on Russian sanctions.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.