An independent body has been created to crackdown on the misbehaviour of payday lenders.
A new watchdog headed up by former Banking Code Standards Board Chief Executive, Seymour Fortescue, has been set up to monitor the payday loan industry.
The Short-term Lending Compliance Board (SLCB), which has been created by the Consumer Finance Association (CFA), will begin a programme to make sure payday lenders are operating correctly and borrowers are properly protected.
Lenders will be monitored to make sure they comply with the CFA’s code of practice, which was introduced last November, and auditing will take place by KPMG.
Fortescue said under the board's monitoring scheme payday lenders will have approximately a year to get in shape or they will face compulsory regulation.
Supervisory board
The move follows a damning report earlier in the year by the Office of Fair Trading (OFT). It said many payday lenders were allowing borrowers to take out loans without checking they could repay them, vastly increasingly the amount of debt owed.
The new board will identify gaps in the CFA code and have the power to punish lenders which don’t comply. Lenders found in breach of the code could face potential expulsion from the CFA, public naming and shaming and referral to the OFT and the Financial Conduct Authority (FCA).
[SPOTLIGHT]Some companies have already had their licences removed, but a huge number of lenders still exist, charging interest rates which are often more than 4,000%.
At the launch Fortescue said the board would have a zero tolerance attitude to bad practice and will use all its powers to make sure borrowers are getting the protection they deserve.
Media reports
Payday lenders have been surrounded by negative press this year. Just last week Citizens Advice said 65% of borrowers weren’t asked about their financial situation before taking out one of these loans.
The number of people seeking help with spiralling payday loan debt has also risen. Over four months more than 11,000 people contacted the Citizens Advice forguidance, while there was a 109% increase in the number of people contacting debt charity StepChange last year for help with payday loans.
An advert was also banned recently featuring Kerry Katona for the lender Cash Lady. The Advertising Standards Agency (ASA) said it was irresponsible and encouraged people to borrow money who were in financial dificulty. Katona was picked because of the financial troubles she has had, mainly going bankrupt, but now a similar advert has been re-released.