Payday lenders face tougher rules

There will be 'tougher requirements' for payday lenders and 'stronger protection' for consumers when the Financial Conduct Authority (FCA) takes over regulation of the consumer credit industry in April 2014.

The proposed regulatory regime is open for consultation until December and will apply to firms and individuals that:

  • offer credit cards and personal loans
  • sell goods or services on credit
  • offer goods for hire
  • provide debt counselling or debt adjusting services.

Under the proposals, there will be:

  • mandatory affordability checks on borrowers
  • a limit of two on the number of loan rollovers
  • a restriction to two on the number of times a continuous payment authority can be used
  • tighter restrictions on what payday lenders can say in adverts
  • FCA powers to ban misleading adverts
  • a 'fit and proper' test for firms and individuals authorised to do consumer credit business
  • supervision and enforcement teams to crack down on poor practice, money laundering and unauthorised business.

The FCA's chief executive, Martin Wheatley, said:

"We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don't want to stop that happening. But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower's account. That is why we're imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities."

Richard Lloyd, executive director of consumer rights group Which?, said:

"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."