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 doing this."

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 society."
 

By Gavin Drake

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 homeless."

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 forward.

"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 them."

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 0006