Payday loan firms face regulator crackdown

Picture: PA
Picture: PA
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A raft of measures have been unveiled in a bid to crackdown on the controversial payday loans sector.

The Financial Conduct Authority, which is to take over regulation of the sector from the Office of Fair Trading next year, said it is proposing a mandatory affordability check on borrowers and to limit the number of times a high-cost short-term credit loan can be rolled over to two among the list of sanctions with which members of the industry will have to comply.

Separately, a government survey by the Department for Business, Innovation and Skills (BIS), found that payday lenders are not fully complying with industry standards brought in last year to better protect consumers.

The survey found that nearly a quarter of consumers said they were put under pressure to extend their loan and approximately half of those surveyed said that lenders did not explain the risks to them of doing so, while one in five customers reported that the lender did not ask about their finances when taking out an initial loan.

Margaret Lynch, chief executive of Citizens Advice Scotland, said advisors at its network of bureaux across Scotland currently see around 100 people a week who are stuck in crisis debt to payday lenders.

“The number of people who are getting into problem debt because of Payday Loans has risen considerably in the last few years,” she said.

“It is notable that the things being outlined today are all areas in which the payday loans industry itself had promised to clean up its act, but has failed to do so. Last year the industry signed up to a Code of Conduct which included pledges on many of these specific issues. We have been monitoring the experience of borrowers this year, and the evidence is clear that many lenders are not sticking to those promises.”

The sector has rocketed in size in recent years. A report from the Bureau for Investigative Journalism found last month that the ten biggest payday lending companies have a total turnover of nearly £800 million - up from £313m just three years ago.