Tougher scrutiny for payday lenders
Such companies will find it harder to enter the market and will also have to undergo more rigorous checks when the Financial Conduct Authority (FCA) takes control of overseeing the consumer credit market.
The presence of payday lenders in the UK market has grown because of an influx of lenders from the US, where restrictions have been considered tougher than in the UK.
Consumer groups have been urging the Government to tighten regulation of the industry, with Consumer Focus saying previously that more should be done "to prevent consumers getting caught in spiralling debt".
A recent study from Shelter found that one in seven Britons has turned to credit such as a payday loan or unauthorised overdraft to help cover their rent or mortgage in the last year.
Last month, insolvency trade body R3 found that 7% of people it surveyed, potentially equating to 3.5 million British adults, would be tempted to take out a payday loan over the next six months, which can result in interest rates of several hundred per cent being charged.
Under the more probing new regulations, firms will have to show a business plan and set out how they intend to treat customers, which is not currently required, and will also undergo more checks when they are up and running in the hope that problems are spotted earlier, before consumers are harmed.
Responsibility for the consumer credit market currently lies with the Office of Fair Trading (OFT), which can only impose fines of up to £50,000. But the FCA will have powers to impose unlimited fines on firms who breach rules and to take enforcement action against key people who are found guilty of misconduct.
Mark Hoban, Financial Secretary to the Treasury, said: "This is good news for consumers. The new Financial Conduct Authority will have much stronger powers to better protect customers who access credit, including from payday lenders. It will be a more proactive regulator."
© 2012 Press Association