Payday Lenders Facing Unlimited Fines
Tougher controls on payday lenders could see unlimited fines for companies which break the rules amid claims some are even lending to children.
The Financial Conduct Authority (FCA), which will take over regulation of consumer credit from the Office of Fair Trading (OFT) in April 2014, said the sanctions were among a host of proposed new rules that would go out to consultation.
The organisation, which will cover tens of thousands of firms offering services such as overdrafts, credit cards and debt advice, was formed six months ago with the promise of strengthening protection for consumers.
Among its other recommendations are: limiting to two the number of times a payday loan can be rolled-over, banning misleading adverts and compulsory affordability checks for all loan applicants.
Payday loan firms have come under intense scrutiny in recent months after a damning report by the OFT found "deep-rooted" problems.
The Competition Commission is carrying out a full-scale investigation of the industry and will reveal its findings next year.
After details on the proposed new rules emerged, assistant chief executive of Citizens Advice, Mike Dixon, alleged that some firms had loaned money to children under 16, telling Sky News they were "breaking all kinds of rules."
The OFT, which referred the £2bn industry to the commission, is worried firms are emphasising the speed of the loan over cost and are "skimping" on affordability checks.
There have also been complaints of payday firms unexpectedly draining people's bank accounts through a type of recurring payment called a continuous payment authority.
Payday firms would be limited to doing this twice per customer under the proposals.
The FCA's chief executive Martin Wheatley said: "Today I'm putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome.
"The clock is ticking," he added.
Payday lenders have said they have been working to improve standards and ensure loans are given only to those who can afford them.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents many short-term lenders, said: "The CFA and its members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards.
"Our tough code of practice and independent monitoring, which is unique in the industry, has paved the way for FCA regulation, so we look forward to seeing the detail of the draft rulebook."
In response to the allegation that some firms were lending to children the CFA added: "CFA members do not lend to children.
"Loan applicants must be over 18, have a bank account and regular income as part of the robust affordability checks completed."
The FCA has asked for feedback from consumers as well as lenders before implementing its rules next year.