FCA set to get tough on payday lenders
Mandatory affordability checks on payday loan borrowers could be introduced from April.
The Financial Conduct Authority wants to get tough with the industry it will take over regulation of in the spring and plans to limit the number of loan roll-overs borrowers can make to two.
In addition, the number of times a continuous payment authority (CPA) - where money is automatically debited from a customer's bank account - could be restricted to two.
The FCA is now undertaking a consultation on its plans, which would also mean payday lenders' adverts would have to adhere to much stricter rules and any found to be misleading would be banned.
Martin Wheatley, the FCA's chief executive, 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.
"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. The clock is ticking."
However, academics have criticised the FCA's plans for not going far enough. Andre Spicer, professor of organisational behaviour at Cass Business School, said: "The regulations announced by the FCA on payday lenders only get to first base. The regulations do not address the usurious rates of interest charged. Nor do they ask whether the industry should exist at all.
"This is surprising because Australia and other European countries have put a cap on interest rates. Most states in the US have effectively banned payday lenders. The industry claims such measures will push borrowers into the illegal market. But this claim is far from certain for the mass of borrowers who would never consider going to a loan shark.
"A ban would probably push the majority of lenders to explore more ethical alternatives like community credit co-ops."