Payday Lenders Face Debt Sympathy Inquiry
A wealth of complaints about how payday lenders and other such firms treat their customers has prompted an inquiry by the City regulator.
The Financial Conduct Authority (FCA), which assumes oversight responsibility for the consumer credit market on April 1, said it was making a priority of the issue because three-fifths of complaints to the Office of Fair Trading (OFT) are about how debts are collected.
The watchdog, which has previously announced a range of measures to strengthen protections for consumers, wants to investigate how sympathetic lenders are when customers struggle to pay back their debts.
It will examine the culture at each payday firm.
More than a third of payday loans - equal to 3.5 million - are repaid late or not at all annually.
The FCA said its new rules should help reduce the numbers.
They include limiting the number of times a payday loan can be rolled-over to two, the banning of misleading adverts and compulsory affordability checks for all loan applicants.
But the regulator said it also wants to see struggling borrowers helped by discussions on the different options open to them.
It expects that around one quarter of payday firms will decide they cannot meet its higher consumer protection standards and leave the market.
The consumer credit market is huge.
Around 50,000 consumer credit firms are expected to come under the FCA's remit from next month when it assumes responsibility from the OFT.
Around 200 of those firms will be payday lenders - a number already reduced through failures to adhere to market rules or simply leaving the market because of the looming regulations.
Analysis by the Competition Commission, which is carrying out a separate inquiry into the payday loan sector, found that such firms currently issue approximately 10.2 million loans a year, worth £2.8bn.
The average size of a payday loan is £260.
By comparison, the entire consumer credit market is worth over £200bn.
Martin Wheatley, the FCA's chief executive, said: "There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck."
The regulator is additionally considering a cap on the overall cost of short-term credit, which would be put in place early next year.
The Consumer Finance Association, which represents the biggest payday operators, welcomed the developments.
Its chief executive Russell Hamblin-Boone said: "We urge the FCA to use its proposed price cap on credit to tackle excessive default fees and charges which are used by the least reputable lenders to profit from customers who are already in dire straits.
"CFA members offer a range of help for customers in financial difficulty including freezing interest and charges to prevent a short-term loan becoming a long-term debt," he said.
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