New rules curb powers of payday lenders

But do they go far enough?


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From today, payday lenders will no more be allowed to roll over loans more than twice or help themselves to the contents of borrowers' bank accounts.

They will also be required to place risk warnings on television advertisements to highlight the dangers of late payments, and direct borrowers to the government's Money Advice Service (MAS) for help.

One of the most controversial practices of payday lenders has been the use of a continuous payment authority (CPA) to collect money directly from a non-payer's bank account. From today, they'll only be allowed to make two such attempts, and will not be able to take partial payment if full payment is refused.

The change is designed to protect consumers from spiralling debts, often with interest rates as high as 5,000 percent. Earlier this year, homelessness charity Shelter revealed that almost a million people were relying on payday loans to help pay their housing costs.

"Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable," says chief executive Campbell Robb. "It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness."

The introduction of the new rules follows the appointment of the Financial Conduct Authority (FCA) earlier this year to oversee the industry.

"We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don't want to stop that happening," says FCA chairman Martin Wheately.

"But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower's account. That is why we're imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities."

Mike O'Connor, chief executive of the StepChange debt charity, says he welcomes the new rules - but wants the FCA to go further.

"Multiple payday loan borrowing continues to be a major source of problems," he says. "In 2013, we helped 13,800 people who had five or more payday loans. In order to fix this, the FCA should mandate a system of real-time data sharing, to ensure that lenders have a fully accurate picture of a borrower's financial situation, including any existing payday loans."

This may well happen. The FCA will consult this summer on whether it should crack down further on payday lenders, following the publication of a report from the Competition Commission. Data sharing is under consideration, as is placing a cap on interest rates.

"The FCA is right to ramp up pressure on lenders who exploit people's money problems and must turn this into tough consequences where they find instances of unfair and bulling debt collection," says Citizens' Advice chief executive Gillian Guy.

"The FCA shares our concerns over the risk these practices pose to consumers, and we will be working with them to share our evidence and make sure that consumers are protected."

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