The new financial regulator wants to shut down payday lenders

The Financial Conduct Authority claims new rules for high cost loans will force bad behaving companies out of business.

by Rachel Savage
Last Updated: 12 Mar 2014

The Financial Conduct Authority is getting ready to flex its muscles over payday loans when it takes over the regulation of consumer credit on April 1. It’s talking tough about new regulations which boss Martin Wheatley says ‘will probably force about a quarter of the firms out of the industry’.

‘That’s a good thing because those are the firms that have poor practices,’ Wheatley told the BBC. The head regulator said he wants to stop lenders profiting from ‘vulnerable people’, cap the costs of loans and prevent lending to people who can’t repay. The latter is surely a prerequisite for any viable business, but perhaps the FCA thinks rubbish payday lenders need a kick up the backside to get them out of the industry.

The FCA also wants to shine an uncomfortably bright spotlight on the way high cost loan companies treat their customers, stating that it will ‘pay a visit to the biggest payday lenders’ (ooh scary) to ‘see whether the focus is truly on the customer – as it should be - or simply oriented towards profit.’

Being customer and profit-focused is not mutually exclusive (nor should it be). But the payday loan market, which sprang up pretty speedily and unexpectedly during the recession, could probably use a bit more oversight.

The 200 or so payday lenders account for less than 1.5% of the £200bn consumer credit market - a mere drop in the debt ocean. However, the Office of Fair Trading, which is currently in charge of overseeing the industry, said 60% of complaints to it are about how debts are collected. Moreover, a third of payday loans - around 3.5 million a year - are paid late or not at all, the FCA said.

On the other hand, payday loans can provide a valuable source of short-term finance between paydays, as long as those who take them out can afford to avoid stratospheric interest rates that soar as high as 6,000%.

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