By Lyndsey Hall
The Financial Conduct Authority (FCA) has proposed a limit on the number of times payday lenders, such as Wonga and QuickQuid, can allow a borrower to roll their loan over instead of repaying it.
The FCA proposed a maximum of two extensions could be offered to customers, whereas the Office of Fair Trading (OFT) suggested that rolling over just once was a sign of financial difficulty. The Consumer Credit Trade Association, however, has called the FCA’s proposal “arbitrary”, and suggests that a more stringent affordability check would be more beneficial.
The FCA has talked about making risk warnings compulsory on payday lenders’ adverts and marketing material when it takes over from the OFT, the current consumer credit regulator, in April 2014. The warnings would resemble those used by mortgage lenders advising borrowers that their home may be repossessed if they fall behind on payments. The FCA has also threatened to make irresponsible lenders reimburse borrowers in extreme cases, after it takes over next year.
Earlier this year, OFT wrote to fifty payday lenders, warning them that some of their practices were non-compliant and demanding that they change the way they do business. This resulted in nineteen lenders withdrawing from the market completely, and a further six companies ceasing to offer payday loans, or having their licences suspended. Today, there are still more than two hundred companies offering this type of loan, many of which are members of the Consumer Finance Association (CFA), which has its own code of conduct.. The CFA only allows lenders to offer rollovers a maximum of three times, and if a borrower defaults on their repayments for longer than sixty days, the amount they owe is then frozen.
Some of the FCA’s other proposals for regulating payday lenders include:
- limiting the number of times a lender can attempt to take payments out of a borrower’s account using a Continuous Payment Authority (CPA) to twice
- providing any customer who requests an extension on their loan with information about free debt advice
- more stringent affordability checks
- limiting the interest rates that lenders can charge
However, the FCA recognise that there is a place for payday lenders and do not want to prevent borrowers from using them, as this may cause them to turn to illegal loan sharks instead. The stricter regulations would simply serve to separate the wheat from the chaff, and oust any remaining rogue lenders.
What do you think about the proposed stricter regulations on payday lenders? Are they in the customers’ best interest, or the banks’? We’d love to hear from you.