The Financial Conduct Authority has stepped in with emergency action to curtail hidden brokerage fees levied on customers by payday lenders.
The new rules mean brokers can no longer raid the bank accounts of customers with fees they did not expect. It follows complaints to banks from customers who do not understand the various fees they have been charged.
The FCA has uncovered evidence that brokers, as well as charging additional fees that were not properly explained, are then sharing the account details of those getting the loan with up to other companies, who also attempt to charge a fee.
The FCA has also received relevant intelligence from consumer groups and others who are seeing increasing complaints from people who have had money taken from their accounts unexpectedly and often by more than one broker.
In an unusual step for the FCA - who normally work in consultation with the firms - seven firms have been stopped from taking on new business and three further cases have been referred for enforcement action. The new rules come into force on January 2 next year. Martin Wheatley, chief executive of the Financial Conduct Authority said:
The fact that we have had to take these measures does not paint this market in a particularly good light. I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.
An influential watchdog has put forward measures which could make the payday loan market more competitive and customers £60 better off.Read the full story ›
Almost three quarters (74%) of parents want payday loan companies to be banned from broadcasting television and radio adverts before the 9pm watershed, according to a new study.
The research found that over one third (34%) of children find the adverts to be fun, tempting or exciting, and this group were significantly more likely to say they would consider using a payday loan in the future.
The statistics form part of a report by The Children's Society which calls for restrictions on loan advertising to join those already in place to protect children from adverts for gambling, alcohol, tobacco and junk food.
Samantha Carr spoke of her grief after he father killed himself when he racked up £18,000 debt through payday loan firms.Read the full story ›
Prior to announcing proposals for a new cap on the costs of taking out loans from payday lenders, the FCA conducted a survey of 2,000 representative customers.
The results identify the level of financial difficulties those borrowing endure.
The head of the Consumer Finance Association, which represents the industry, has urged people to consider the full consequences of a crackdown on the high costs and charges enforced by payday lenders.
Anyone who thinks that a price cap is good news for borrowers should have a thought for those many people who will be turned down for loans because the best lenders will have to reject those with the worst credit records.
We support a cap that allows the industry to operate profitably with the right protection in place for vulnerable people. With new regulations and tighter affordability checks, critics must now face up to the fact that most people use, need and like short-term credit and the measures in place are more stringent than for any other form of consumer credit.
For a lot of people borrowing from a payday lender "is not a good idea" and they can find themselves getting further into debt, a finance chief told Good Morning Britain.
Financial Conduct Authority (FCA) chief executive, Martin Wheatley, admitted the interest cap on payday loans would "restrict the availability of loans to some people" but it would keep customers away from toxic debt.
The Financial Conduct Authority's proposals for a cap on payday lending mean that from January interest and fees on new loans, including those rolled over, must not exceed 0.8% per day of the amount borrowed.
Payday lenders will lose £420m in revenue a year as a result of the rate and costs cap being brought in from January 2015, ITV News Business Editor Joel Hills has tweeted:
FCA estimates that as a result of their cap payday lenders will lose £420m in revenue per year.