Tougher regulation is on its way for the UK’s payday lenders in an attempt to protect consumers.
All borrowers should have a check on affordability prior to be given a loan is just one of the new rules being proposed by The Financial Conduct Authority (FCA).
The FCA also wants to put risk warnings on adverts and other marketing material.
Irresponsible lenders would struggle to comply with the new proposals and this has been welcomed by the payday industry.
“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.” said Martin Wheatley, the FCA’s chief executive.
The proposals mean that anyone taking out a loan would need to prove that they could afford to repay it.
A seperate survey suggested, one in five customers said they had not even asked about their finances when they applied for a payday loan and was still successful in borrowing.
Among other proposals, the FCA have recommended 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 capped at 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 insists it does not want to stop consumers using payday loan companies and believes that they could turn to loan sharks instead if the payday loan industry collapsed.
Mr 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,”
More than 200 companies offering short term loans will be affected by the proposed changes.