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Crackdown on payday loans industry

Crackdown on payday loans industry

Category: Loans

Updated: 03/10/2013
First Published: 03/10/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Government crackdown on the payday loans industry could see lenders being forced to place risk warnings on payday loan advertisements.

Under new regulations that the Government hopes will be in force by April 2014, the Financial Conduct Authority (FCA) will also be able to instantly ban any advertisements it deems misleading.

Other proposed changes include:

  • Compulsory affordability checks for all borrowers.
  • The number of payday loan roll-overs will be limited to two.
  • When borrowers extend a payday loan they will be informed of where they can go to get free debt advice.

Payday lenders have been heavily criticised for the way they claw back money owed by borrowers - in some cases emptying borrowers' bank accounts by using a Continuous Payment Authority (CPA) - and the FCA is tackling this by limiting the number of times a payday lender can use a CPA to two.

The news comes as a separate Government report concluded that the industry has failed to fully comply with standards brought in last year.

The research found that nearly a quarter of borrowers who'd taken out a payday loan said they were pressurised to extend their loan, while approximately half said lenders did not explain the risks involved in doing so.

One in five payday customers, meanwhile, reported that their lender did not ask about their financial situation when taking out a loan.

Worryingly, nearly three quarters of the borrowers surveyed by the Government said they were not dealt with sympathetically when they faced difficulties paying back the loan, while only 14% said their lender told them where they could find free, independent debt advice.

"We warned the industry months ago that if it didn't get its house in order we would step in. Now the FCA has come out today and published strong actions which will tackle the problems the market has failed to address," said Consumer Minister Jo Swinson.

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