New regulations to provide better protection for borrowers are to be put in place by the UK Financial Conduct Authority (FCA) next year, when the government agency will take over from the Office of Fair Trading (OFT) on 1 April 2014. The proposals include tighter restrictions on payday lenders, as well as other organisations offering credit or loans.
The FCA is carrying out a consultation process that proposes a new regime to strengthen protection for consumers. According to the proposals, payday lenders will be required to make mandatory affordability checks on borrowers; limit the number of loan roll-overs to two; and restrict the number of times a continuous payment authority (CPA) can be used to two. There will also be restrictions on the way payday lending is advertised and any adverts deemed to be misleading will be banned by the FCA.
Measures are planned to ensure that any company or individual that offers credit cards and personal loans, sells goods or services on credit, offers goods for hire or provides debt counselling or debt adjusting services to consumers will have to comply with the new FCA regulations, the regulator added.
Under the new regulations, the FCA will be responsible for more than 50,000 firms who have existing credit licences. The consultation is open until 3 December 2013 and the FCA will publish its final rules and guidance in February 2014.
Chief executive of the FCA, Martin Wheatley, stated: “Our aim is to create a regime that protects consumers and allows businesses to operate. There is a balance to be struck here, and to make sure we get it right we want to hear from as many interested parties as possible.”
The Department for Business, Innovation and Skills (BIS) also announced the results of a survey today, which reveals that almost 25% of consumers felt they were under pressure to extend loans. About 50% of borrowers said the lender did not offer advice about the risks involved, while 20% taking out an initial loan were not asked about their financial position. More than 60% of customers also said lenders didn’t appear to check their finances with regard to rolling over a loan.
Jo Swinson, Consumer Minister commented: “This research shows that the industry has failed to self-regulate effectively. We warned the industry months ago that if it didn’t get its house in order we would step in. Now the FCA has come out today and published strong actions which will tackle the problems the market has failed to address.”