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Primate welcomes new rules on high-interest loans

11 October 2013

WONGA.COM

Reassuring figures? Wonga's commercials feature the characters Betty, Earl, and Joyce, who tweet on Twitter

Reassuring figures? Wonga's commercials feature the characters Betty, Earl, and Joyce, who tweet on Twitter

THE new Financial Conduct Authority (FCA), which takes over the regulation of the consumer-credit industry next April, has published a draft of new "tighter rules" to regulate the payday-loan market.

The new rules were published last week, as a government study of the financial sector offering high-cost short-term loans reported that "overall, compliance with the key provisions of the [industry's own] charter and codes of practice is not good enough. On none of the key measures tested do consumers say that industry is complying fully."

The new regulations are set to come into force in October 2014. They require advertisements for payday loans to carry "clear risk warnings"; borrowers will be able to roll over a loan only twice beyond its original repayment date; and lenders will be barred from making more than two attempts to take money from their customers' bank accounts using Continuous Payment Authorities.

One of the main criticisms of the loans is the high cost of credit. Wonga, the best known of the payday lenders, has a representative APR of 5853 per cent. In contrast, the APR on a Barclaycard is 18.9 per cent. But the FCA's new rules will not impose a cap. The FCA said that "at this stage, we don't believe we have enough evidence or information to fully un- derstand the implications of doing this."

The Archbishop of Canterbury, who has emerged as a figurehead in the battle against payday lenders (News, 4 October), welcomed the "attention given . . . to helping to protect those most at risk from the dangers of an uncontrolled slide into unmanageable debt.

"I especially welcome the proposed constraints on the Continuous Payment Authority, and will be watching with interest to see if these will be enough to protect the most vulnerable in our society."

The regulation of advertising for payday lenders is currently shared between the Office of Fair Trading, which deals with the statutory aspects, and the Advertising Standards Authority (ASA), which deals with wider issues connected with the self-regulatory Code for Advertising Practice.

On Wednesday, the ASA banned a Wonga radio advertisement that featured a reworded version of the 1950s song "Mr Sandman", because it "gave the impression that a high-interest short-term loan was not a financial commitment that required a great deal of consideration". It said that this impression was "compounded by the claims [in the advert] about the simplicity of the application process".

It is the second time in three weeks that a radio commercial for payday lenders has been banned by the ASA. The Authority has now published new rules covering payday loans and social responsibility. In them, it says that advertisers should avoid "heavily promoting" the speed and simplicity of a loan "while downplaying less positive aspects, and should not otherwise encourage consumers to rush a decision to borrow money".

In its new guidance, the ASA says: "Simply stating that loans are available to low-income groups, for example people on benefits, is likely to be acceptable. However, targeting people who could be perceived as vulnerable has the potential to be problematic."

Responding to the increasing public concern about the practices of payday lenders, Plymouth City Council has banned such companies from using its city-centre advertisement hoardings. It has also joined a number of local authorities in banning access to the payday lenders' websites from council computer networks.

"We want to protect the most vulnerable of people from falling into the trap of borrowing money at astronomical rates of interest," Cllr Michael Jones, leader of Cheshire East Council - one of the first to introduce the website ban - said.

"We took this action after being inundated by complaints from the public. We've also received reports from Citizens Advice that they are now dealing with people under 18 who have been given loans, and some people who may even have been intoxicated when they signed up."

Next Tuesday, a cross-party group of MPs, led by the Labour MP for Sheffield Central, Paul Blomfield, will join a coalition of charities and think tanks, including Church Action on Poverty, to launch a "High Cost Credit Charter", seeking stronger regulation.

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