U.K. payday lenders will have to check whether customers can afford loans they provide under new rules after a government survey found they weren’t fully compliant with standards designed to protect consumers.
Payday lenders will also have to limit the number of times the credit can be rolled over to twice and the regulator will be able to ban advertisements it deems misleading, the Financial Conduct Authority said in an e-mailed statement today. The rules are scheduled for April 1, when the FCA takes over from the Office of Fair Trading in regulating consumer credit.
A study by the U.K.’s Department for Business, Innovation and Skills published today found almost a quarter of consumers said they were put under pressure to extend their loan and about half said that companies didn’t explain the risks of doing so. The payday loan market should be reviewed by the Competition Commission over concerns the lenders target people with poor credit histories and it is difficult to determine the full cost of loans, the OFT said in June.
“This type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower’s account,” FCA Chief Executive Officer Martin Wheatley said in the statement.
Payday lenders typically charge high interest rates for small cash sums over shorter periods than a bank loan. The industry’s loans cost an average of 25 pounds ($41) per 100 pounds for 30 days, the OFT said in March.
“The industry has failed to self-regulate effectively,” Consumer Affairs Minister Jo Swinson said in a statement. “We warned the industry months ago that if it didn’t get its house in order we would step in. Now the FCA has come out today and published strong actions which will tackle the problems the market has failed to address.”
-- Editors: Jon Menon, Simone Meier, Tony Aarons