The Financial Conduct Authority (FCA) has today published a set of proposals aimed at tackling irresponsible behaviour by some payday lenders.
Perhaps the most noteworthy of the FCA’s new proposals is the insistence that consumers must have an “affordability check” before being granted a loan. This is especially significant given that a recent government survey into the payday loan industry found that 1 in 5 customers weren’t asked about their finances when they applied for a loan. Affordability checks would mean that anyone taking out a loan would need to be able to prove that they could afford the repayments before being granted a loan.
Other proposals from the FCA include a requirement that lenders put risk warnings on adverts and marketing materials, and that the maximum number of times a lender could take money from a customer’s account using a Continuous Payment Authority (CPA) should be two. Lenders would also be unable to extend or “rollover” a loan more than twice, and according to the FCA, anyone extending a loan should be told about the availability of free debt advice.
The payday loan industry cautiously welcomed the proposals, saying that irresponsible lenders would find it hard to comply with the new rules. The FCA made it clear that they did not want to stop consumers from using payday loans, as there is a fear that if this was encouraged individuals may turn to illegal loan sharks instead. Martin Wheatley, chief executive of the FCA, 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.”
The Citizens Advice Bureau (CAB) welcomed the proposals; chief executive Gillian Guy said:
“We've long been calling for tough action to tackle payday lenders after the appalling behaviour of some lenders has driven people deep into debt and caused unnecessary hardship. The new rules from the FCA are essential to stem the tide of predatory payday lenders and protect consumers from unacceptable behaviour from the credit industry.
“All too often people are given loans without proper checks or assessments as to whether they'll actually be able to afford to repay and others see their debts balloon as loans are rolled over. Some people are left without money to get to work or put food on the table as lenders take payment after payment out of people's bank accounts without any warning.”