The Financial Conduct Authority (FCA) is proposing tough new rules for payday lenders following concern over the way some are operating.
However, the regulator has fallen short of capping the interest rate lenders will be able to charge, a decision which will frustrate many who have campaigned for the change.
FCA payday loan proposals
The proposals include:
- Forcing payday lenders to put risk warnings, similar to those used for mortgages, on their adverts, highlighting the danger of debt to borrowers
- Allowing the FCA to ban adverts they did not approve of
- Borrowers will only be able to ‘roll over’ or extend loans twice and anyone doing so, should be told about the free debt advice available
- Payday lenders will only by allowed two attempts to withdraw money from a borrowers account using the controversial Continuous Payment Authority (CPA) system
No cap on interest rates, yet
Despite these tough new proposals the regulator is not currently proposing a cap on the high interest rates charged by many payday lenders. Wonga’s, possibly the most well-known payday lender, currently quotes an APR of 5853%, whilst many other lenders quote APRs in excess of 1,000%.
Martin Wheatley, Chief Executive of the FCA, 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.”
He continued: “Our aim is to create a regime that protects consumers and allows businesses to operate. There is a balance to be struck here, and to make sure we get it right we want to hear from as many interested parties as possible.”
“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.” (Source: BBC)
The announcement from the FCA comes after the Office of Fair Trading (OFT) wrote to 50 payday lenders earlier in the year to investigate whether their business practices were suitable. As a result 19 payday lenders withdrew from the market, whilst six had their licences withdrawn by the OFT.