Payday loan interest rates to be ‘capped’

The Government has announced plans to allow the UK’s new financial regulator the power to cap interest rates on payday loans. Many parliamentarians have campaigned vigorously against the rates charged by payday lenders, which can exceed 4,000% APR.

In April 2013, it is expected that the Financial Conduct Authority (FCA) will take over most of the responsibilities for overseeing the conduct of financial services firms that currently lie with the Financial Services Authority. In April 2014, it is anticipated that the FCA will also take on the responsibility of regulating the consumer credit industry from the Office of Fair Trading.

The proposed amendment to the Financial Services Bill – the legislation that will provide for the setting-up of the new FCA – will allow the regulator to intervene on the issue of interest rates if it believes it is appropriate to do so.

Lord Sassoon, a Treasury minister, announced that the Government would be taking this step in late November 2012. Labour’s shadow business minister Lord Mitchell had previously proposed his own amendment to the Bill, which would have provided for an automatic cap on interest rates, with his supporters including Lord Welby, the new Archbishop of Canterbury.

Lord Welby drew a spiritual parallel in making the case for legislation. “The rates are clearly usurious, to use an old fashioned expression. It used to be said in the old days that you couldn’t take away people’s beds and cloaks because they were essential for life. That is the Hebrew scriptures. Today, there are equivalent things being taken away as a result of these very high rates of interest. It’s a moral case which is bad for us, bad for the clients, bad for all of us in this country when it is permitted to happen,” said Lord Welby.

The Government has committed to introducing its amendment provided Lord Mitchell agrees to drop his amendment. It was believed that had Lord Mitchell’s plans been debated in the House of Lords that the Government could have been defeated.

Lord Sassoon said: “We need to ensure that the Financial Conduct Authority grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution.”

Lord Mitchell described the Government’s move as a “very welcome statement of intent”.

Stella Creasy MP has previously described payday lenders as ‘legal loan sharks’. However, payday lenders have argued that they actually operate on very low profit margins, and that the use of APR – compulsory in all consumer credit advertising – is inappropriate for short-term lending.

Payday lenders are also coming under increased regulatory scrutiny, with their business practices having also attracted adverse comment. Even before the FCA commences regulation of short-term lending in 2014, current consumer credit regulator the Office of Fair Trading has said it intends to issue warnings to the majority of the 50 lenders it inspected in its recent compliance review. Payday lenders who are members of one of four trade associations are now also subject to a new Good Practice Customer Charter.


Information Commissioner takes action on cold calling

The Information Commissioner’s Office (ICO) is cracking down on unsolicited marketing calls, emails and texts. The ICO, which upholds standards of practice concerning information rights and data privacy, has monitored 14 companies. Seven of these could face enforcement action, including household names TalkTalk, British Gas, Scottish Power and Anglian Windows. Three more unnamed companies are still under investigation.

In most industries, companies are allowed to make cold telephone calls, but seeking business face-to-face, i.e. calling door-to-door or stopping passersby; making automated calls; and sending unsolicited texts are all prohibited. The Financial Services Authority also bans cold calls to sell certain types of financial product. However, consumers who receive cold calls have the right to request not to be called again by that company, and organisations must also not make cold calls to anyone who has registered with the Telephone Preference Service (TPS).

The ICO has taken this action based on complaints it has received, and complaints received by the TPS, with the ICO suspecting that some firms are illegally phoning TPS registered consumers. The ICO received 7,095 complaints regarding cold calls in the period 2011-12, an increase of 43% over a 12 month period.

Four claims management companies (CMCs), all specialising in payment protection insurance (PPI), have already been the subject of action by the ICO. CMCs have been cited by the ICO as a problem industry for cold calling, along with home improvement companies, direct marketers and utility providers.

In July 2012, the ICO was granted the power to impose fines of up to £500,000 for breaches of the Privacy and Electronic Communications Regulations regarding cold calling or sending texts and emails. It has a dedicated team of staff who specialise in monitoring this area. In addition to its own powers of enforcement, the ICO can initiate criminal prosecutions of organisations who break the law.

Simon Entwistle, Director of Operations at the ICO, said in October 2012: “The public have told us that they are increasingly concerned about the illegal marketing texts and calls. These are often made by rogue companies claiming to offer pay outs for accidents a person has never had or PPI claims that they are not necessarily entitled to.

“While companies can phone people to sell them the latest product or service, the law states that individuals should not receive unsolicited texts or automated marketing calls unless they have given their permission. We know many companies are failing to do this and two individuals responsible for sending millions of illegal marketing messages are now facing six figure penalties unless they can prove otherwise.”

In November 2012, charity Citizens Advice called for CMCs to be banned from cold calling. Its research suggested 90% of consumers have received calls, emails or texts from CMCs, of which 72% concerned re-claiming PPI.

Citizens Advice chief executive Gillian Guy used some rather stark language regarding the matter by saying “These firms are intimidating people in their home and wasting a lot of people’s time.”