Consumers will be given extra protection against rogue payday lenders and debt management companies, under new rules announced by the FCA on Friday.
The rules, which come into effect on 1 April 2014, will put the onus on credit providers to ensure they treat customers fairly.
Under the new changes, credit card, debt management and payday loan providers will be banned from rolling over loans more than twice.
They will also be restricted in attempting to claw back money from borrowers using a continuous payment authority (CPA).
Mandatory checks will also be introduced to make sure that any borrower taking out a payday loan is able to afford it.
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Clean Up Credit campaign
Which? launched its Clean Up Credit campaign in October 2013 calling on the FCA to crack down on poor lending and unscrupulous practices across the credit market and has welcomed the FCA’s latest move.
Richard Lloyd, Which? executive director, said: ‘It’s good to see this tough approach from the Financial Conduct Authority to clean up the credit market and take on firms that have been exploiting millions reliant on high cost credit to pay for essentials.
‘However, we want the FCA to go further and limit the number of loan roll-overs to one and to require lenders to remind borrowers three days before that payment is due by continuous payment authority (CPA).’
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Tough new penalties
Any offenders can expect to face a thorough investigation and/or a fine. The FCA will also be given new powers to ban misleading adverts by payday lenders.
Martin Wheatley, the FCA’s chief executive, said: ‘Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.’
Key changes to credit market
Other key changes will include:
• A requirement on firms to provide information to customers on how to get free debt advice;
• Debt management firms having to pass on more money to creditors from the start of a debt management plan, and to protect client money;
• A robust authorisation gateway to ensure firms are fit and proper;
• Dedicated supervision and enforcement teams to crack down on poor practice, money laundering and unauthorised business.
The government announced plans in March 2013 to impose tougher restrictions on payday lenders, following a year-long investigation by the Office of Fair Trading (OFT).
The consumer credit market is worth £200bn a year and includes around 50,000 firms.
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• Call the Which? Money Helpline – our experts can help with your debt query