The Financial Conduct Authority (FCA) today announced details of how it will regulate consumer credit, including payday loans, when it takes over from the Office of Fair Trading (OFT).
The proposed changes will enable the regulator to provide stronger protection and better outcomes for consumers.
Mandatory affordability checks for payday loans
Payday lenders will be subject to tougher requirements under the new proposals. These include a mandatory affordability check on borrowers and limiting the number of loan rollovers to two.
Research by the Department for Business, Innovation and Skills (BIS) published today found that nearly a quarter of customers felt pressured by lenders to extend their loan and only around half said the lender explained the risks of rolling over.
The FCA has also promised to ban misleading adverts and there will be restrictions on the number of times a continuous payment authority (CPA) can be used. Responding to the BIS survey, nearly one in three people said that this type of recurring payment was not clearly explained to them.
Use our template letters to cancel a continuous payment authority with your bank and cancel a continuous payment authority with your lender.
Which? is campaigning to clean up credit
Which? is collecting evidence from consumers about their experiences of the credit industry, which it will share with the FCA. Share your experiences of the credit industry here.
Responding to the new payday loan regulations set out by the FCA, Richard Lloyd, Which? executive director, said: ‘Our research shows millions of people are increasingly reliant on high cost loans to pay for essentials or to repay other debts, so it’s good to see the Financial Conduct Authority planning to take tough action to clean up credit.
‘We welcome proposals to tackle unscrupulous payday lenders but we want the regulator to go further and use its full powers to clamp down on problems faced by struggling consumers across the credit market, like sky-high penalty charges.’
The FCA will publish its final rules and guidance in February 2014 and will take over from the OFT in April 2014.