New UK business watchdog the Financial Conduct Authority (FCA) has proposed a series of tougher directives for payday loans companies, which will force industry leaders to work harder at compliance. The FCA – successor to the much-maligned Financial Services Authority – wants all borrowers to submit to an “affordability” check before receiving loans, and the body wants to place risk warnings on adverts and marketing materials, among other steps.
Not restricted simply to the payday loans segment, the regulations would apply to “any firm or individual offering credit cards and personal loans, selling goods or services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers”.
Among its proposals, the FCA suggested that:
Dedicated enforcement teams will crack down on poor practice, money laundering and unauthorised business
Lenders will not be able to extend loans on more than two occasions
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
Loan claimants should be offered free debt advice
If ratified, says the FCA, the new standards will be printed in a new rulebook, the Consumer Credit Sourcebook, and will provide greater protection for consumers than the current regulations. However, the body added that the restrictions were not aimed at thwarting the businesses of short-term lenders and as such it has invited companies and the general public to provide feedback in a consultation so that the final measures are balanced.
The payday loans market has been criticised heavily in the headlines, with concerns that claimants have been hit with crippling interest rates of up to 5,800% on short-term cash sums. Numerous politicians and debt charities have argued that the industry is exploitative towards Britain’s poorest, many of whom struggle to cover rising bills with their current earnings.
Despite those concerns, the use of payday loans is at a high with about two million current customers, according to the Public Accounts Committee.
Russell Hamblin-Boone, chief executive of industry body the Consumer Finance Association (CFA), welcomed the new proposals and indicated that the appetite for compliance was high. “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. The publication of the FCA’s Rule Book is an important milestone for the entire consumer credit industry, and an opportunity to set a bar over which irresponsible lenders will struggle to jump.”
He added: “We remain resolutely committed to working with the regulator, driving out irresponsible lending practices and protecting consumers so that they can continue to access short-term credit from an increasingly reputable and reliable set of regulated lenders.”
The public consultation on the FCA’s proposals will be open until December 3 this year.
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