Payday lender clampdown takes effect

Payday lender Wonga has faced intense criticism

1 July 2014

Payday lenders are facing a tougher world today, one in which they must act more responsibly or face being put out of business.

New rules that come into force today force high-cost credit companies to play fairer with borrowers.

Crucially, they’ve been banned from rolling over loans more than twice after it emerged that some lenders were making as much as half their profits from rollovers.

But encouraging people to rollover loans again and again – sometimes as much as 12 times - boosts lenders’ profits and increases the debt woes of hard-up people, putting them closer to financial difficulties.

Payday firms have also had a limit set on how many times they can attempt to take money from borrowers’ bank accounts under controversial continuous payment authorities (CPAs).

The CPAs give lenders access to people’s bank accounts and have been used to drain them of money, leaving people in financial hardship.

Now payday firms can only make two attempts to claw money out of people’s accounts using a CPA.Lenders must also include “risk warnings” on television adverts from today.

Companies which break the new rules have been warned they face losing their credit licence, which effectively puts them out of business.

Meanwhile the payday lending industry is under investigation by the Competition and Markets Authority. It has called for an independent price comparison website to be set up to help people compare payday loan costs, after discovering that borrowers are being charged around £60 a year over the odds for loans.

Mike O’Connor of StepChange Debt Charity said: “The payday lending industry has shown it cannot put its own house in order, and these rules represent an important step in addressing some of the sector’s most obvious failings.

The Financial Conduct Authority should go further to fix this market where abuse is causing real damage to people.”

He said that multiple payday loan borrowing continues to be a major source of problems. “In 2013, we helped 13,800 people who had five or more payday loans. In order to fix this, the FCA should mandate a system of real-time data sharing, to ensure that lenders have a fully accurate picture of a borrower’s financial situation, including any existing payday loans.”

The FCA said it has been working with payday lenders to encourage "real time" data-sharing. Last week, a real time service called Moda run by credit reference agency Callcredit went live. Those who have signed up include Wonga, QuickQuid and Pounds to Pocket.

Payday lender clampdown takes effect

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