Payday lenders operating in the UK are being told to check whether borrowers can afford their short-term, high-cost loans under new rules introduced to address poor practice.
The UK’s financial regulator has announced its final verdict on plans to oversee consumer credit providers and debt management companies and says it intends to take a “hands on” approach.
From 1 April, around 50,000 firms will be required to meet new requirements which include a ban on misleading adverts and provision of debt advice. Lenders will also not be able to automatically hit a customer’s bank account for funds if they miss a payment and cannot roll over loans more than twice.
The UK’s “Wonga economy” has ballooned over the past few years, which has led to growing criticism from politicians, debt charities and consumer groups.
Last year George Osborne, chancellor, told the regulator that it had a duty to impose a cap on the costs incurred by borrowers. This is expected to be put in place on 2 January 2015.
“Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it – whether that’s for one day, one month or longer,” said Martin Wheatley, chief executive of the Financial Conduct Authority.
“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.”