Government launches payday loans clean up
Payday lenders pushed to improve transparency about the costs of their loans.
Four trade associations, representing over 90% of the payday and short-term loan industry, have announced a series of improvements to their Codes of Practice. The changes follow pressure from the Government, and are aimed at improving borrowers’ understanding of what the loans will cost them.
The trade associations are:
- Finance & Leasing Association
- Consumer Finance Association
- British Cheque & Credit Association
- Consumer Credit Trade Association
Here’s the new commitments that payday lenders will need to abide by:
- Introduce a ‘good practice charter’ explaining how the loan works and what it will cost.
- Inform customers three days before money is withdrawn.
- Increase transparency about loan repayments, so borrowers are not surprised by hidden payments.
- Freezing charges and interest for borrowers in difficulty.
- ‘Robust’ credit and affordability tests to ensure loans are suitable.
- Trade Associations will monitor lender activities to ‘root out poor practice in the industry’.
Just the start
Improving transparency about additional costs and making clear just how much the loan will cost are obviously welcome improvements. It’s just a shame that the Government is leaving it up to the trade associations themselves to try to enforce compliance.
However, it is encouraging that the Government wants more.
Norman Lamb, the business minister who announced the changes, said he also wants to see further restrictions on the use of continuous payment authority. He expects further changes to be announced once the Office of Fair Trading (OFT) publishes its report on the market, and is even considering handing the OFT new powers to suspend credit licences with immediate effect.
But is it enough? Do we need to have a cap on the huge interest rates charged by some payday lenders? Let us know your views below.
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Comments
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If you cant afford it then you shouldn't have it. Never borrow money because its just a way hole down hill and you will never have a good nights sleep ever again. For any young people reading this then just start saving as soon as you can, put your money where ever you can and just save it and when your older you will never need to borrow money.
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These loans are a con but people do need them because they are being let down by regular sources because they don't have a gleaming credit record for whatever reason. What if you have young children and your cooker decides to pack up. Can you afford to just go without? How about if your car needs repair and there is no way form of public transport that is going to get you to work on time. Do you show up late and risk your job? In my opinion the interest rate needs a cap and the whole industry needs regulation, but to say they all need to be closed down is just naive. They serve a purpose that other people are not willing to take on and they should only ever be a last resort after all other avenues have been exhausted (family, credit builder cards, etc) for absolute emergencies. Half the problem is that they have made it too easy to get credit. The real problem only starts when people don't properly look at their income and expenditure before taking out a loan like this, which is something the company should be doing. If that is done and the interest rate is capped to a sensible level then there shouldn't be too much of a problem.
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@ g1ng3rcat... (and others) You still don't get it, even though you've given a good example to support my argument. If you, at best, can only put aside £50 a month then surely you'll never be able to pay back a loan where the interest alone is £100 a month. I'm sorry that I don't have a solution to the type of situation you describe, but a pay-day-loan is definitely not the answer because it will only make the situation worse. And then what will you be doing???
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12 September 2012