Tougher rules for payday lenders
Tougher controls on payday lenders are expected to be unveiled by the City regulator tomorrow as it sets out how it plans to oversee the consumer credit market from next year.
The Financial Conduct Authority (FCA) will take over regulation of consumer credit, which covers tens of thousands of firms providing a broad range of services which also include overdrafts, credit cards and debt advice, from the Office of Fair Trading (OFT) on April 1 2014.
The FCA, which came into being in April this year, has promised to strengthen protections for consumers, with its powers to step in quickly and sort out problems, impose unlimited fines and compel businesses to give people their money back when they have lost out due to poor treatment.
Payday loan firms, which have come under intense scrutiny in recent months after a damning report by the OFT found "deep-rooted" problems in the sector, are expected to be a key part of the FCA's focus as it outlines its proposed set of rules tomorrow.
The FCA will be inviting feedback from consumers as well as the industry, so that it can put finalised rules in place early next year.
The payday industry is currently undergoing a full-scale investigation by the Competition Commission, which is expected to give provisional findings early next summer and a full report by the end of 2014.
The OFT, which referred the £2 billion industry to the Commission after its own investigation, previously said it is worried that firms are emphasising the speed of the loan over cost and that the pressure to hand loans out quickly may encourage lenders to ''skimp'' on affordability checks.
Consumer campaigners have accused payday firms of being "out of control" by acting aggressively to claw back debts and encouraging borrowers to roll over loans so that they are trapped with the lender as the original cost of the loan rapidly escalates.
Calls have been made for caps to be placed on the number of times loans can be rolled over and there have also been complaints of payday firms unexpectedly draining people's bank accounts of cash through a type of recurring payment called a continuous payment authority (CPA).
In July, the FCA's chief executive Martin Wheatley indicated that a possible advertising ban for payday firms could be considered.
He said previously: "Clearly that is an option that could be considered if it was felt that the way that advertising was being used couldn't be dealt with through any other measures short of that."
Payday lenders have said they have been working to improve standards and make sure loans are only given to those that can afford them. They have said that rogue lenders which have tarnished the whole industry should leave.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents major short-term lenders operating in the UK, said: "The CFA and its members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards.
"Our tough code of practice and independent monitoring, which is unique in the industry, has paved the way for FCA regulation so we look forward to seeing the detail of the draft rulebook."