Many of the top ‘payday loan’ companies have agreed to revised codes of conduct after a customer charter by four trade bodies, to be implemented on the 26th November this year.
New rules set out by the trade bodies - Consumer Finance Association (CFA), British Cheque & Credit Association (BCCA), the Consumer Credit Trade Association (CCTA) and the Finance & Leasing Association (FLA) - include interest freezes on repayments after a certain point, greater transparency with charges and extra fees, and more thorough checks by lenders to assess whether borrowers can afford to repay loans.
It is hoped that by providing greater transparency to borrowers, confusion over hidden charges and repayment fees can be avoided, meaning people will be less likely to get into a spiral of debt due to unforeseen costs. Lenders are expected to clearly outline the fees for each £100 borrowed before processing loans.
After a sharp rise in those seeking help from debt charities due to payday loan worries (National Debtline revealed figures yesterday of a 116% increase over one year), this new move is seen as a positive change by some.
The Chief Executive of the national charity Citizens Advice, Gillian Guy, said:
"We welcome this much-needed customer charter on payday lending and look forward to its implementation as soon as possible. The test will be the extent to which it actually changes practice.”
“As more and more people are being offered loans they can't afford to repay and put onto rollovers with huge interest rates and charges, we hope that this charter ensures they get better protection and clearer information before deciding whether a payday loan is appropriate for them."
However, many consumer groups are not satisfied that the new regulations address some of the biggest problems thought to surround payday loans.
The executive director of Which?, Richard Lloyd, commented:
"If this code is to be worth the paper it's written on, far more needs to be done to enforce the rules and protect vulnerable people who are getting caught in a downward spiral of debt”.
Further worries have also been voiced that the new rules will not be enough to prevent people from making snap decisions about taking out high-interest short term loans and that lenders may still be able to take advantage of vulnerable borrowers.