The industry is worried that bad behaviour by some lenders has given the whole sector a bad name.
Irresponsible advertising, intimidation of customers and recklessly rolling over debts until customers go bankrupt has harmed the industry’s reputation, leading to campaigns by MPs to ban lenders or cap rates.
But the sector is attempting to brush up its own standards preemptively.
The CFA, whose members include high street names including Cash Converters, The Money Shop and Quick Quid, covers around 70 per cent of the market.
Its members will now be covered by the Short-term Lending Compliance Board (SLCB), headed by former Barclaycard boss and ex-chief of the Banking Code Standards Board, Seymour Fortescue.
His board will begin auditing the firms this summer and aims to complete the investigation by the end of the year. They will look at issues including selling practices, debt collection and advertising.
If bad behaviour is found they have sanctions available from naming and shaming those involved through to recommending the regulator investigate, potentially fining those involved or striking off the firms.
“The SLCB will have a zero tolerance approach to bad practice and will be using all of its powers, whenever required, to ensure the CFA’s members are measuring up to the association's Code and that consumers are getting the protection they deserve,” said Fortescue. “We shall pay particular attention to issues such as proper credit appraisal, preventing repetitive borrowing and fair treatment of customers in financial difficulties.”
He will be joined on the board by consumer advocate Nick Lord and finance lawyer Robert Rosenberg.
Consumer minister Jo Swinson welcomed the plan: “It is encouraging to see the CFA and their members are committing to higher standards and better consumer protection.”