COMPANIES that provide payday loans have been put on notice that
they have one year to improve the way they operate before proposed
new regulations take effect.
The new Financial Conduct Authority (FCA) takes over regulation
of the consumer credit industry in April. It launched a
consultation yesterday on how it will regulate the industry, and
published proposed tighter rules for companies operating the
high-cost short-term credit facilities.
"We know that some consumers who take out a payday loan often
have problems paying it back," a spokesman said. "This worries us,
because these loans are often used by people in financial
difficulty; so we're proposing to apply tighter rules than before,
to make sure payday lenders treat their customers fairly."
The FCA says that it has seen evidence of "a range of problem
areas among payday lenders", including firms who do check whether
customers can pay back the loans, and firms who repeatedly "roll
over" loans, charging very high fees and interest for doing so.
The FCA is also concerned about the use of "continuous payment
authorities" (CPAs) that allow companies to repeatedly attempt to
take money from customers' bank accounts even after they have been
told they can't afford to pay them.
The proposed new rules will require advertisements for payday
loans to carry a "clear risk warning" and information about free
debt advice. Firms will only be allowed to extend, or roll over, a
loan twice, and will need to provide information about sources of
debt advice when they do so.
Also, the use of CPAs will be restricted to two attempts. "We
believe that this allows customers some flexibility, while giving
them more control to manage their way out of financial difficulty,"
the FCA said.
One of the biggest criticisms of payday loans is the high
interest and fees charged to customers. The most well-known of the
payday loan providers, Wonga, has a representative APR of 5853 per
cent. In contrast, the APR on a Barclaycard is 18.9 per cent. The
FCA has ruled out introducing a price cap, at least in the
short-term, saying: "At this stage, we don't believe we have enough
evidence or information to fully understand the implications of
In a speech in Birmingham last month, the Archbishop of
Canterbury criticised the use of CPAs by payday loan firms (News,
27 September). Yesterday, he "warmly welcomed" the proposed new
rules. "I commend the attention given . . . to helping to protect
those most at risk from the dangers of an uncontrolled slide into
unmanageable debt," Archbishop Welby said.
"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
PEOPLE who live a
"payday-loan lifestyle" are using one high-cost loan to pay off
another in order to afford basic foodstuffs, a leading
debt-counselling charity said this week.
The charity Christians
Against Poverty (CAP) made this observation as it released the
results of a survey showing that four out of five of those who had
responded (78 per cent) and who had taken out a payday loan had
done so to afford food.
"People taking out payday
loans are not, typically, doing cosy house repairs, as most payday
lenders would have us believe," the CAP chief executive, Matt
Barlow, said. "People who take out this expensive sort of credit
are hungry, [and] worried about keeping warm and becoming
The CAP survey of more
than 1500 of its clients revealed that more than half had taken out
between two and five payday loans before seeking help with their
debts. A further 16 per cent said that they had "lost count" of how
many payday loans they had used.
The Archbishop of Canterbury is leading a campaign to promote
credit unions as an ethical and cheaper alternative to payday
lenders (News, 25 July). Last
month, he told a meeting of Housing Association executives in
Birmingham that a task group had been established to take this
"The credit-union movement is full
of people . . . that are very vibrant, and very imaginative," he
said. "We are helping. We are not it. We are not the solution. We
are simply trying to provide some support."
Alongside the task group, he said,
work was under way to develop a common "plug-and-play" platform so
that smaller credit unions did not have to create their own
financial systems. Work needed to be done to promote the
achievements of community-based finance schemes. "Credit unions
need not be seen as the poor person's bank," he said.
Last week, the Advertising
Standards Agency (ASA) banned a radio advertisement for the
payday-loan provider Pounds to Pocket, after a listener said that
it was "irresponsible". In its ruling, the ASA said that the
advert made "general references to wanting a loan, without any
sense that necessity had led to that decision".
Diocese deplores need. Llandaff
diocese this week said that it "deplores the social and economic
conditions which make food banks a necessity" in a motion passed by
its diocesan conference.
Supporting the motion, the Bishop of
Llandaff and Archbishop of Wales, Dr Barry Morgan, described food
banks as "a quick fix which failed to address the root of the
problem. I am glad that people are supporting food banks, but the
question that we should be asking is why in a civilised society do
we have food banks in the first place - we ought not to need
The motion urged churches to provide
"active support" for food banks, while calling on congregations to
"work for a society in which all people have an income sufficient
to meet their needs".
CAP debt helpline: 0800 328