Payday lenders will be forced to check that people can afford to pay back their loans under a tough new clampdown revealed today.
And lenders will be banned from ‘rolling over’ loans more than twice.
The Financial Conduct Authority (FCA) has also promised to ban any adverts that are misleading.
The lenders, dubbed ‘legal loan sharks’ by critics, charge very high interest rates to people who do not repay what they borrow quickly.
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One in 20 families are now relying on payday loans to cover their household costs.
The growth of payday lenders, such as Wonga, QuickQuid and others, has become such a concern that Sandwell, Dudley and Wolverhampton councils have all blocked access to payday lending websites from computers in libraries or other public buildings. Staffordshire’s libraries are not banning them as councillors say people should have ‘freedom of choice’.
Meanwhile Dudley MP Ian Austin has been running a campaign against what he called ‘legal loan sharks’ in the town’s High Street.
Today it was revealed that restrictions will also be placed on the number of recurring payments they are allowed to collect after complaints that they are unexpectedly draining borrowers’ bank accounts of cash.
Firms will only be able to make two attempts to use a type of recurring payment called a continuous payment authority (CPA) to have a loan paid off.
Information on where to get free help with debts must be given to every borrower who rolls over a loan and “clear risk warnings” must be displayed on all adverts and promotions along with details of debt advice.
The 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.
Martin Wheatley, the FCA’s chief executive said: “Today I am putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers can get a fair outcome. The clock is ticking.”
One in five customers have told Government researchers that their lender did not ask about their finances when taking out an initial loan.