- 11 updates
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents short-term lenders, argued that more people would turn to illegal lenders if the cost of credit were capped and defended payday loans saying companies were already checking customer's ability to repay.
Martin Wheatley, chair of new watchdog the Financial Conduct Authority (FCA), it was time for the payday loan industry to step-up to the legal framework they have proposed, or leave the industry.
Alan Hardman retired 18 months ago and was forced to borrow money after a delay in getting his pension. He paid back the short-term loan a fortnight later, but his pension was short of his expectations and he was forced to take another one a few weeks later.
He describes being caught up in a trap of borrowing more to pay back his interest, and said he thought the loan would be like a bank loan, but soon became aware of what he had inadvertently taken on, and wants to warn others to avoid falling into the trap he did. He said:
"It's just an ongoing, ongoing thing, and it grows and grows and you can't get out of it."
Martin Wheatley, chief executive of new watchdog the Financial Conduct Authority (FCA) said the proposed changes to how payday lenders can operate is to ensure consumers are given greater protection, specifically to ensure lenders do not "drain money from a borrower's account."
Debt charity StepChange have welcomed today's proposed new rules for payday lenders, saying they were a "crucial move towards a new era for consumer credit."
The charity have helped more than 30,000 people struggling with payday debt in the first half of this year, which is almost the number it dealt with across the whole of 2012. 7,000 of their clients this year are people who have five or more payday loans.
StepChange Debt Charity head of policy Peter Tutton said:
"The current regulatory regime has left consumers inadequately protected against poor practice from the payday lending industry."
"The FCA's proposals represent a crucial move towards a new era for consumer credit."
The new rules for the payday loans industry "is a step forward" towards regulating "a disgrace of an industry", a Citizen's Advice Bureau chief has said.
Mike Dixon told Daybreak companies like Wonga lent to children, drunks and "people who have not got a snowball's chance in hell of paying back".
However, Mr Dixon wants to see "properly tough enforcement" so payday loan companies found breaking the new rules are prevented from lending again.
Payday lenders are flouting the rules they agreed last year to better protect their customers, new research has found.
A survey of consumers by the Department for Business, Innovation and Skills found a majority did not have the process explained correctly to them:
- Nearly a quarter of consumers surveyed said their were pressurised into extending their loan, and half said lenders did not fully explain the consequences of extending
- More than 60% said lenders did not check to see if they could afford to roll their loan over
- Nearly one in three people said a payment called a "continuous payment authority" was not explained to them
- Almost three-fifths of people said they were not told how to cancel these recurring payments.
Consumer Minister Jo Swinson said it was clear the industry had failed to self-regulate. She said:
A financial watchdog has unveiled tough new rules on payday lenders, that include:
- All payday lenders adverts and other promotions must be fair, clear and not misleading. The FCA can ban misleading adverts.
- Affordability checks for every credit agreement to ensure that only those who can afford a loan can get a loan.
- Specific rules for the payday sector have been proposed which include; limiting loan rollovers to two, clear risk warnings will be displayed on all adverts and information on where to get free debt advice will be given to every borrower that rolls over a loan.
- A dedicated enforcement team will crack down on poor practice, money laundering and unauthorised business.
- Firms that break the rules may face detailed investigations and tough fines.
Latest ITV News reports
The FCA will take on new powers to ban adverts however there will be no new rules governing the interest rates charged by the companies.
New rules on the way for lenders in how they grant loans and demand payments, but no changes to the interest rates or fees they can charge.