PAYDAY lenders must do more to check borrowers can afford loans, stop rolling over debts so many times, and will face limits on how they access customers’ bank accounts, the City watchdog said yesterday.
The proposed rules are expected to lead 25 to 30 per cent of the estimated 50,000 firms in the sector – up to 15,000 firms – to shut up shop.
The Financial Conduct Authority (FCA) will take responsibility for the consumer credit sector in April 2014, and wants to crack down on bad practices in a sector traditionally associated with very high interest rates on loans to the vulnerable.
New rules will make it harder to get a licence, require firms to give more details about specialist staff, compliance and reporting systems.
They will also be banned from rolling over loans more than twice, in an effort to stop short-term credit becoming a long-term burden. And firms will have to more thoroughly check the finances of their borrowers.
“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,” said watchdog boss Martin Wheatley. “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.”
Industry body the Consumer Finance Association said these rules should successfully stamp out bad practices in the sector.
“The publication of the FCA’s rule book is an important milestone for the entire consumer credit industry, and an opportunity to set a bar over which irresponsible lenders will struggle to jump,” said CFA chief Russell Hamblin-Boone. “We remain resolutely committed to working with the regulator, driving out irresponsible lending practices and protecting consumers so that they can continue to access short-term credit from an increasingly reputable and reliable set of regulated lenders.”