Parliament’s Business, Innovation and Skills Committee have issued a detailed report on the payday lending sector, in which they make a number of far-reaching recommendations. The Committee sought evidence from lenders, trade associations and consumer organisations before issuing the report.
The Committee welcomed the fact that political leaders are devoting more attention to the subject of payday loans. The main Government policy announcement on payday lending in recent months was the cap on the total cost of credit.
However, the Committee believes that a number of additional measures are required, as illustrated by the stark language used by Committee chairman Adrian Bailey MP in the press release accompanying the report. Mr Bailey said: “1.2 million people plan to take out payday loans to cover the cost of Christmas. The evidence we heard suggests they should think very carefully before doing so. Inadequate affordability checks, unacceptable targeting and inappropriate use of rollovers all are symptoms of a payday loans sector in urgent need of overhaul.”
The Committee’s recommendations include:
- Lenders to submit their affordability tests to the Financial Conduct Authority (FCA) for approval
- Unless the industry has established real-time data sharing by July 2014, the FCA to be compelled to make it a requirement. (This refers to the fact that lenders do not share information in this way at present, and customers are often able to take out loans with multiple lenders on the same day.)
- Lenders to give three days notice of their intention to use continuous payment authority (CPA), and such a notice should refer to a customer’s right to cancel such an arrangement.
- A ban on payday loan advertising on children’s television
- Health warnings to be given the same prominence as Annual Percentage Rates on advertisements, and these warnings to be repeated at every stage of the transaction process
- A possible ban on marketing of payday loans by email and text, if discussions between the FCA and the Information Commisioner’s Office uncover evidence of a major problem in this area
- Payday loan authorisation fees paid to the FCA to be ring-fenced to give the Money Advice Service additional resources to provide debt advice
The new FCA regulations for payday lending, which come into force in April 2014, contain a number of new rules for lenders on issues such as affordability checking, CPA and health warnings on adverts. However, the Committee recommendations go much further on these issues and on other matters.
Reacting to the report, Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), disagreed with the Committee’s assessment of the scale of the problems. The CFA is a trade body that counts payday lenders Quick Quid and Payday UK amongst its members.
Mr Hamblin-Boone began by saying that his members already refrained from advertising on children’s television. Various statistics have been quoted about children’s exposure to payday loan advertising, and broadcasting regulator Ofcom said the average child saw 70 loan adverts in 2012, but it is unclear how many of those were during children’s programmes.
He went on to say that CFA members are already subject to restrictions on the use of rollovers, already give three days notice before using CPA, carry out rigorous affordability checks and comply with a strict CFA code on the use of electronic marketing. Moves to establish real-time data sharing were described as “already well advanced.”
The Committee can offer advice to the Government, however it does not have the power to make policy decisions. But regardless of how the Government reacts to the report, it is clear that the introduction of FCA regulation will not put an end to the debate about payday loan regulation.