Government Ministers and regulators met payday lenders and consumer groups for the first time today, to discuss ‘serious concerns’ about payday lending and what the industry should do to tackle criticisms and protect customers.
Update: payday lending summit – the outcome
Ministers and regulators faced up to problems with the payday loan industry at today’s summit, pointing to a consultation later in the year on tougher new rules, and a continuing crackdown from the Office of Fair Trading (OFT), as the next steps for cleaning up the industry.
The Financial Conduct Authority (FCA) will have much stronger powers in regulating payday lenders when it takes over regulation of the industry in April 2014, but payday lenders were urged to start acting responsibly in the meantime.
The Department for Business Innovation & Skills (BIS) also announced it will be commissioning research to further its understanding of how consumers respond to advertising on payday loans, as well as an industry survey on compliance.
Update: Which? calls for the industry to clean up its act without delay
Following the summit, 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 loan 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.
‘It’s clear the industry must not wait for new rules to come in and must clean up its act without delay. More action is also needed by the whole of the credit industry and government to come up with new ways of providing affordable credit to people that need it and can afford it.
‘We will be watching closely to make sure the promises we heard today from ministers and regulators are kept, and quickly.’
Payday lending summit aims to address concerns
Ministers today set out a plan to address concerns and make clear that they expect the industry to tackle criticisms and do more to protect customers. The summit looked at the measures the FCA could introduce the reduce consumer harm in the industry when it becomes the regulator in 2014. Advertising, rollovers and affordability checks around payday lending were also discussed.
Half of payday loan users have taken out credit it turned out they couldn’t repay, while nine in 10 people think that payday loan companies should always include the cost of borrowing in advertising, according to Which?’s consumer tracker.
Consumer Minister Jo Swinson chaired today’s meeting attended by chief executives of the payday lending trade associations, a number of major payday lenders, representatives from the Advertising Standards Agency, Financial Ombudsman Service and Money Advice Service, as well as consumer groups Which?, Citizens Advice and debt charity Stepchange.
Which? asks for the payday lending industry
New research from Which? shows that 4% of households (around one million) take out payday loans each month, and around four in 10 (44%) of people are worried about their household level of debt. Of those who take out payday loans, four in 10 use them to pay for essentials like food or fuel, while a quarter use it to repay other credit.
Which? believes that new responsibilities must be places on lenders and the regulator to take action at today’s summit to clean up the payday industry. Which? wants to see the following:
- Firms must lend responsibly, ensuring thorough affordability assessments that asses the borrower’s income, expenditure, any outstanding credit commitments and overall ability to repay the debt.
- The Office of Fair Trading (OFT) must continue to clean up the market by enforcing proper affordability checks and swiftly removing licenses from lenders who flout the rules.
Which? also believes new rules on charges, roll overs and advertising should be introduced by the Government and the FCA in April 2014. We think that:
- Excessive default fees and charges should be banned.
- Lenders should be forced to freeze charges for borrowers in difficultly and prevented from charging interest on high cost loans beyond 30 days after borrowers default.
- Strict limits should be in place over the number of times payday loans are rolled over.
- The cost of payday loans should be advertised prominently as £’s per £100 borrowed over 30 days.
- Clear and prominent health warnings must be given highlighting the consequences of missed payments.