Payday lenders: tough new rules but are they the same old unscrupulous firms?
Are we about to see a sea-change in the way payday lenders act? They’ve come under serious criticism for unscrupulous tactics in the past, not least Britain’s most-profitable payday lender Wonga, which was last week forced to pay £2.6m compensation to borrowers it hounded with fake legal letters.
But now they must act more responsibly or face being put out of business under new rules that come into force today.
Crucially, high-cost credit companies have been banned from rolling over loans more than twice after it emerged that some lenders were making around half their profits from rollovers.
But encouraging people to rollover loans again and again – sometimes as much as 12 times – boosts lenders’ profits but increases the debt woes of hard-up people and puts them closer to financial difficulties.
Payday firms have also had a limit on how many times they can attempt to take money from borrowers’ bank accounts under controversial continuous payment authorities (CPAs).
The CPAs give lenders access to people’s bank accounts and have been used over and over to drain them of money, leaving people in financial hardship.
Now payday firms can only make two attempts to claw money out of people’s accounts using a CPA.
Lenders must also include “risk warnings” on television adverts from today.
Companies which break the new rules have been warned they face losing their credit licence, which effectively puts them out of business.
Meanwhile the payday lending industry is under investigation by the Competition and Markets Authority.
In its provisional findings it called for an independent price comparison website to be set up to help people compare payday loan costs, after discovering that borrowers are being charged around £60 a year over the odds for loans.
I’ve long campaigned for tougher rules for payday lenders. But they’ll only work if the regulator enforces them robustly. I would welcome a world of responsible lenders, but am not convinced it’s very near yet.Tagged in: CPAs, debt, FCA, payday lenders, rollowers, wonga
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