Payday Loans to come under tighter regulation?
Payday loans are no-one’s favourite, and that’s saying something given how popular bankers as a social group are. Wonga in particular have come under fire recently for targeting that traditionally wealthy group, students.
But it’s OK. New regulations by the Finance and Leasing Association (FLA) will put the responsible back into responsible lending. Probably.
Key new bits include:
> Additional measures to help customers in financial difficulty and in particular those with mental health problems.
> A ban on commission payments for shop staff selling store cards, and a delay in discounts or other benefits for the first seven days after a store card is acquired;
> A requirement on lenders to ensure customers are aware of the total cost of a short-term loan (including fees and charges) before they apply, and that the loan is not suitable for long-term borrowing;
> A restriction on the number of times a short-term loan can be extended to a maximum of three, coupled with a requirement that a new credit assessment be carried out each time.
The Code is binding on all fifty FLA members in the consumer credit markets, and is subject to independent oversight. It even includes a customer complaint service.
The problem is that all fifty FLA members only includes one of the major Payday lenders, Wonga, with 75% of the market governed instead by the Consumer Finance Association (CFA). This lot, including high street lenders such as the Money Shop and Cash Converters (who actually already promises not to roll over loans) are therefore not bound by these tighter rules.
CFA Chief Executive, John Lamidey, said introducing a cap on roll overs could be "detrimental" to consumers, and would force them to seek credit elsewhere when they reach their limit. He worries the industry is under unfair pressure "from people who want a simple solution".
"It may well be that we will bow to political or activists pressure and come up with a number [to limit roll overs], but I'm not sure we will do so in the best interests of consumers," he said, while counting all his lovely money from hapless customers.
The CFA says it is working on an "enhanced code" in collaboration with the Department for Business Innovation and Skills and other trade associations, which will launch “later” in 2012.
So nothing much has actually changed then.