Payday loan companies could be banned from advertising, the new financial regulator has warned.
Martin Wheatley, the chief executive of the new Financial Conduct Authority (FCA), said an advertising ban was one of the options it was considering as it prepared to take on the regulation of the industry from next April.%VIRTUAL-SkimlinksPromo%
"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," he said.
"I think there are lots of problems with advertising - that is one element that has been commented on, the targeting of young people, students, children in some cases. If payday loan companies are genuinely targeting a particular income bracket - people with jobs - why do they advertise on daytime television?"
Mr Wheatley was speaking following a summit of lenders, regulators, charities and ministers intended to address the deep-rooted problems in an industry which is accused of making loans to people which they cannot afford to repay and then saddling them with exorbitant rates of interest.
Treasury Minister Sajid Javid said the take over by the FCA would mark a "step change" in the regulation of the industry.
"They now have to deal with a regulator with some real teeth. They are going to feel the hand of the regulator on their shoulder and they better get used to it," he said. "If there is any evidence of irresponsible lending, bad practices, rogue lenders, the regulator has a very important power independently to intervene in that market and to change the rules.
Even to get authorised under the new regime the regulator will look into every payday lender's business model, satisfy itself that it is happy with that business model, it is sustainable, it is sensible, it is responsible."
The meeting at the Department for Business, Skills and Innovation comes after the Office of Fair Trading (OFT) announced last week that it was referring the £2 billion industry to the Competition Commission.
The OFT said that consumers who could not afford to pay back their loans on time were finding themselves trapped with one firm when their loans are rolled over. It is also 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.
Beware the small print
Ad ban mooted for payday loan firms
It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.
Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.
Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.
Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.
So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.
The highest paying savings accounts on the market tend to come with a string of strict terms, which if you fall foul of, result in a drop in interest. Common requirements include paying in a set sum each month and not making withdrawals during a set period.
Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.
Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.
For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).
Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.
Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.
Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.
Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.
Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.
For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.
Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.
According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.
Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.