The Commons debate on payday loans, which took place yesterday, has divided the industry, with lenders challenging the plan to limit the number of loan rollovers allowed to just two.
The debate took place between lenders, consumers groups, regulators and ministers and focused on the proposal of the Financial Conduct Authority (FCA) to place a limit of two extensions to payday loans if borrowers choose not to repay, with the Office of Fair Trading (OFT) suggesting that even one rollover was a sign that the borrower was facing financial difficulty.
This idea has been challenged by a lot of payday lenders, who argue that rollovers are suitable in some cases and that they're not necessarily an indication of financial distress.
The biggest players in the payday loans industry were particularly vocal about the issues and told ministers that they took affordability incredibly seriously, arguing that it was this, rather than rollovers, which should form the basis of any regulation.
Providers Wonga and Mr Lender said that just 2-3% of loans were made to customers who later hit financial difficulties, with a representative of Wonga arguing that the figure "compared favourably" with that of credit card companies and banks.
Adam Freeman, of Mr Lender, pointed out that his company conducted strict affordability checks with only 1 in 100 applications resulting in a loan being offered, adding that in some cases it suited the customer to rollover the loan.
The Consumer Credit Trade Association broadly agreed, describing the plan for two rollovers as "arbitrary" and instead believing that affordability was more important.
MPs also heard that lenders currently had no system in place to check what loans consumers had taken out with other lenders, with consumer groups calling for these cross-checks to be put into the rules.
The debate comes after an OFT report found there were "deep rooted" problems in how payday lenders attracted and treated customers, with 50 of the leading providers being given a dossier and told to improve. The new demands and resulting Competition Commission inquiry has meant 19 firms have exited the market and three have had their credit licences revoked.
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