British regulator proposes tougher rules for payday lenders
Lenders must check if borrowers can afford loans and limit extensions
New rules insisting that lenders check whether borrowers can afford their loans and limiting the number of times the loans can be extended are set to be imposed on Britain’s payday lending industry. Photograph: Chris Ratcliffe/Bloomberg
Britain’s financial regulator warned the payday lending industry it would impose much tougher rules on the sector, insisting that lenders check whether borrowers can afford their loans and limiting the number of times the loans can be extended.
The Financial Conduct Authority was setting out its plans to regulate payday loans providers - which provide short-term loans intended to tide borrowers over until payday - when it takes over regulation of consumer credit industry in April 2014.
“Today I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome,” FCA chief executive Martin Wheatley said. “The clock is ticking.”
The market for payday loans has grown rapidly in Britain and other countries like the US as benefit cuts squeeze poor households’ budgets and traditional bank credit lines wither in the aftermath of the 2008 financial crisis.
Criticism of payday firms has grown too, with lawmakers, poverty-focused charities and the leader of the Church of England saying the high interest rates the firms charge only get poor households into more trouble.
“The publication of the FCA’s rule book is an important milestone for the entire consumer credit industry, and an opportunity to set a bar over which irresponsible lenders will struggle to jump,” said Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents the major short-term lenders operating in the UK.
A government survey released today showed payday lenders were not fully complying with industry standards designed to protect consumers.
Nearly a quarter of consumers were put under pressure to extend their loan and about half said lenders did not explain the risks to them of doing so, said the survey of more than 4,000 people.
“This research shows that the industry has failed to self-regulate effectively. We warned the industry months ago that if it didn’t get its house in order we would step in,” said government minister Jo Swinson.
The Archbishop of Canterbury said in July that payday lenders like Wonga and Provident Financial took advantage of poor households in austerity conditions, and pledged to drive the “morally wrong” company out of existence by launching its own alternative service.(Reuters)