Financial Conduct Authority vows to get tough of payday lenders out to make a fast buck.
An announcement that payday lenders are to be the subject of a thorough review from the Financial Conduct Authority (FCA) has been welcomed by Citizens Advice Scotland (CAS).
The authority replaces the Office of Fair Trading as the regulator for the consumer credit sector from on 1 April and has promised its new rules will protect consumers from lenders out to get rich quick
Margaret Lynch, chief executive of CAS, welcomed the move and said its Scottish advisers see 150 people every week struggling with payday loans – often because of poor practise by lenders.
It should not be too much to expect that lenders operate fairly
“The lending industry had promised to put its house in order last year, but our research found that many lenders in Scotland were continuing to flout their own rules. So it was clear that tough external regulation was necessary,” she said.
“It should not be too much to expect that lenders operate fairly. That includes making sure borrowers don’t take on debts they are unable to control, and offering them genuine help when they do get into difficulty with re-payments.”
The FCA’s new rules for payday lenders, confirmed in February, mean the sector has to carry out proper affordability checks on borrowers before lending.
They will also limit to two the number of times a loan can be rolled-over, and the number of times a continuous payment authority can be used to dip into a borrowers account to seek repayment.
Currently one in three loans goes unpaid or is repaid late and the FCA said, with six out of ten complaints to the Office of Fair Trading being about how debts are collected, the review will look specifically at how firms treat customers struggling to repay.
“These are often the people that struggle to make ends meet day to day, so we would expect them to be treated with sensitivity, yet some of the practices we have seen don’t do this,” Martin Wheatley, FCA chief executive said.
There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck
“There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck.”
The FCA claim the number of people unable to pay on time should be reduced, but for those that do fail to make repayments and are keen to get their finances back on track, there will now be a discussion about the different options available rather than piling on more pressure or simply calling in the debt collectors.
Lynch added: “We want to see a market that allows lenders to make a fair profit and offers sensible borrowing options to consumers. But there must be no hiding place for lenders who flout the rules and operate unfairly.
“These latest actions from the FCA are another step forward for consumers.”
