By Daniel Hunter
Payday lenders could face new restrictions on how they advertise and a new code of practice, under fresh plans announced today (Wednesday) by Consumer Minister Jo Swinson and Economic Secretary to the Treasury Sajid Javid. This comes after new evidence shows problems in the industry are harming consumers.
The measures announced today form part of wider Government efforts to strengthen the way consumer credit is regulated. In addition, Sajid Javid and Jo Swinson have also launched a consultation today confirming the Government’s intention to move regulation of consumer credit to the new Financial Conduct Authority (FCA) from April 2014, and provided further details of how the new regime will work.
Consumer Minister Jo Swinson said: “The evidence of the scale of unscrupulous behaviour by payday lenders and the impact on consumers is deeply concerning.
“The Government is committed to tough action to tackle these problems. The Office of Fair Trading’s (OFT) enforcement action will stop payday lenders taking advantage of those in financial difficulty. In April 2014, we are giving responsibility to regulate this industry to the FCA, who will have more rigorous powers to weed out rogue lenders.
“The Government also wants to see tough action to clampdown on the advertising of payday lending, and will start immediate work on this. The Government will work closely with the Office of Fair Trading, Advertising Standards Agency, Committees of Advertising Practice, and industry to make sure advertising does not lure consumers into taking out payday loans that are not right for them.”
Economic Secretary to the Treasury Sajid Javid MP said: “With the enforcement action and unprecedented changes to the regulation of consumer credit announced today, the Government is sending a clear message to lenders that if they do not comply with the rules, action will be taken.
“The Government is introducing a fundamentally new approach to regulating consumer credit, which will ensure that irresponsible firms and bad practice will have no place in the consumer credit marketplace. Consumers can have greater confidence that the new FCA will intervene early and decisively in their interests — thanks to its more focused remit, objectives and powers.”
An independent research report from the University of Bristol was also published today by Government on the impact of a cap on the total cost of credit cap in the high cost credit market. Separately, the Office of Fair Trading have published today their final report on payday sector compliance. Both reports clearly show there is significant evidence of consumer detriment in the high cost credit markets.
Working together with regulators, the Government is announcing immediate, short term and longer term action to tackle problems in the payday market head on, including:
• The OFT now, and the FCA from April 2014, will clamp down on irresponsible practices and in some cases blatant non-compliance by lenders
• The OFT will be putting 50 lenders on notice, demanding they fix the problems within 12 weeks or face consequences
• The OFT is consulting on a provisional decision to refer the payday lending market to the Competition Commission
• Government will work with the OFT, the Advertising Standards Agency and industry to bring in new restrictions on advertising and tougher codes of practice as soon as possible
• The FCA will have strong new powers to restrict the form and content of advertising, and has committed to use these powers promptly when it takes charge next year
• The FSA have committed to consider whether there are gaps in the regulation of payday lending that need to be addressed by the FCA from April 2014
• The Government is calling in strong terms for the industry to improve compliance with payday lending codes; and to consider whether independent monitoring can be put in place
• To tackle the growing problem of people taking out multiple loans in one day, Government will call on industry to make sure that it improves how it shares and records data
• The Government will also press for further commitments on continuous payment authority to be set out in industry codes
• The Consumer Minister Jo Swinson will talk to key members of the industry in person and call them to account and
• Ministers have confirmed that they will not impose a cap on credit; however a cap might be appropriate at some point in future which is why the FCA has been provided with specific powers to cap should they deem it appropriate once they take over responsibility for consumer credit in April 2014.
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