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Friday, October 04, 2013

Coalition Government clamps down on payday lenders

Today's Western Mail reports that the UK Government through the Financial Conduct Authority is to crack down on payday lenders so as to prevent ease of instant access loans and limit retrieval attempts from struggling borrower's bank accounts.

The paper says that firms will no longer be able to grant loans in 10 minutes while a limit will also be placed on the number of attempts payday firms can try to claw money back from a struggling borrower's bank account.  The last measure will be controlled by using a type of recurring payment called a continuous payment authority minimising the attempts to just two:

Lenders will be forced to place "risk warnings" on their promotions and advertising, urging consumers to "think" before taking on a payday loan with the watchdog able to ban adverts if it thinks they are misleading.

The promotions by a payday firm will carry risk warnings such as: "Think! Is this loan right for you? Over two million short-term loans were not paid off on time in 2011/12. This can lead to serious money problems."

The proposed new rules, which will come into force next year, aim to combat soaring complaints about the £2 billion sector, which has doubled in size in the last few years and used by an estimated two million customers.

Payday lenders will have to carry out stricter checks to make sure borrowers can afford to take loans and they will only be able to roll a loan over twice, to stop consumers sinking into a spiral of debt.

This is a major step forward and certainly more than the previous government did. However, there is still the outstanding issue of capping interest rates. One can only hope that once the Financial Conduct Authority gets it full powers in April they will do this too.
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