Payday loan firms could face ban on advertising

Jo Swinson: consumer minister hosted summit. Picture: Getty
Jo Swinson: consumer minister hosted summit. Picture: Getty
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Payday loan companies could be banned from advertising in the UK, the new financial regulator has warned.

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), said a ban on advertising payday loan companies was one of the options it was considering as it prepared to take on the regulation of the industry from next April.

The proposal would put the payday loan firms in the same category as cigarette companies and political parties in not being allowed to advertise in the UK.

Mr Wheatley’s suggestion came as payday lenders, regulators, charities and government ministers met to tackle the “deep-rooted” problems found in the loan industry.

Consumer minister Jo Swinson, who hosted yesterday’s summit just days after the sector was referred for an in-depth ­investigation by the Competition Commission, warned that lenders are not sticking to “the spirit or the letter” of the Code of Conduct they agreed at the end of last year.

“Clearly that [a ban] is an option that could be considered if it was felt that the way that advertising was being used couldn’t be dealt with through any other measures short of that,” said Mr Wheatley.

“I think there are lots of problems with advertising – that is one element that has been commented on, the targeting of young people, students, children in some cases.

“If payday loan companies are genuinely targeting a particular income bracket – people with jobs – why do they advertise on daytime television?”

Which? executive director Richard Lloyd said: “With people increasingly turning to high-cost credit to pay for essentials like food, it’s good to see ministers and regulators facing up to the widespread problems with payday lenders.

“Positive noises about tough new rules have come out of the summit but these must now be backed up with more concrete actions than we’ve seen today.”

Yesterday’s summit considered whether more can be done to clamp down on problems in the industry. The commission’s investigation will take up to 18 months and it has powers to ban or limit products and shake up whole markets.

The Office of Fair Trading referred the £2 billion industry to the commission last Thursday, saying it fears that consumers who cannot afford to pay their loans back on time are finding themselves trapped with one firm when their loans are rolled over.

It is also worried that firms are emphasising the speed of the loan over its cost and that the pressure to hand loans out quickly may encourage lenders to “skimp” on affordability checks.

The OFT said some firms’ business models appeared to be based around customers taking out loans which they are forced to roll over because they cannot afford them. The OFT found that up to half of lenders’ revenues came from the extra charges and interest from loans being rolled over.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents the UK’s major short-term lenders, said: “It was helpful to once again hear the opinions and suggestions of the government, regulators, consumer groups and debt charities.”

Citizens Advice dealt with 1,200 cases in the past three months

Citizens Advice Scotland has revealed that advisers at its bureaux dealt with more than 1,200 cases related to payday loans in the past three months.

The consumer group, which has campaigned for tighter controls over the sector, said problems with the short-term loans, which can charge interest rates of up to 4,000 per cent, had become one of the most common things dealt with by its advisers.

Margaret Lynch, chief executive of Citizens Advice Scotland, said: “Payday loans have become one of the biggest issues brought to the CAB service in Scotland, as more and more people get into levels of debt they simply can’t afford to repay.

“People tend to only come to the Citizens Advice Bureaux when their situation gets really desperate, so the fact that over 1,200 Scots have done so in just three months is a very worrying sign of just how widespread and how serious this problem has become.”

The value of the payday loan market is estimated to have rocketed from around £900 million in 2008 to as much as £1.9 billion today as companies offering high-interest, short-term loans plug a gap in the market.