Payday lenders set to face tough regulations
Payday lenders are set to face new rules including advertising curbs and closer supervision after an investigation by the Office of Fair Trading (OFT) found extensive malpractice across the industry.
The government is looking to limit the number of adverts shown per hour on TV and ensure the terms and conditions are displayed more notably. The high-cost, short-term lenders advertise heavily on television and on the internet.
They lend hundreds of pounds for a few weeks, but charge interest rates that come to thousands of percent on an annual basis. The government would force them to clearly display interest rates in the advertisements to make sure that payday loan firms do not take advantage of consumers who are already drowning in debt.
It would seek the help of the Advertising Standards Authority to avoid advertisements tempting consumers to take payday loans that are actually unsuitable to them.
A year-long investigation by the Office of Fair Trading into the industry included spot checks of 50 major lenders and questioning of all 240 lenders in the market.
Ministers have previously legislated to allow a ceiling on the cost of loans, but they are not expected to impose one as a report from the University of Bristol suggested that a cap might reduce competition.
In April 2014, the current consumer credit regulator OFT will be replaced by the new Financial Conduct Authority (FCA), and it will have tough enforcement powers such as imposing unlimited fines as well as the ability to claw consumers' money back, close firms, ban individuals and cap interest rates.
Recently, the Money Advice Trust, a charity offering free money advice to people with debt problems, said that complaints about payday loans have doubled year-over-year and reached a record of 20,000 across 2012. Payday loan companies, such as QuickQuid, Wonga and Payday UK, were heavily criticised for charging interest rates of up to 4,000 percent a year.
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