A new code of practice for payday lenders has been agreed by the financial sector to provide greater protection to vulnerable consumers, but consumer champion Which? believes it does not go far enough.
Payday lenders must now ensure that information about fees and charges is clearly presented, to help people avoid the prospect of taking out the wrong kind of loan and being left to struggle with debt.
But Which? executive director Richard Lloyd has criticised the plans, saying that the rules fall ‘far short of expectations. It has taken the industry months to agree to the most basic of codes, and largely amounts to a rebrand of many of the existing rules that have been flouted by some unscrupulous lenders for years.’
10 rules for payday lenders
The code of practice contains ten key requirements for companies offering payday loans Under the new rules lenders that are members of the BCCA, the Consumer Credit Trade Association, the Consumer Finance Association and the Finance and Leasing Association must:
- treat customers fairly and with care. Any mistakes must be quickly corrected, and compensation awarded for any reasonable losses caused;
- undertake credit checks to ensure that borrowers can afford to repay the loan;
- explain in clear language all terms and conditions of the loan and offer assistance to applicants who do not understand the requirements;
- clearly show the total cost of repayments before loans are applied for;
- agree the loan amount and repayment period with applicants if a fixed-term loan is on offer;
- set an appropriate credit limit for customers if a running account agreement is offered;
- explain the costs and consequences of late- or non-repayments;
- provide reasons why a loan is not offered;
- assess subsequent loan applications in the same manner;
- offer a modified repayment schedule to customers who are struggling with their repayment, and offer advice to customers who miss repayments.
Lenders must abide by the code
Responding to the introduction of the code of practice for payday lenders, business secretary Norman Lamb said: ‘The industry must continue its commitment to root out rogue lenders and tackle bad practice.
‘I expect to see real results on the ground coming out of these additions to the lenders’ codes of practice and that the trade associations will undertake a proper assessment of how well they are working.’
More protection for lenders is needed, says Which?
Which? executive director Richard Lloyd was more cautious about the impact of the new rules, saying: ‘If this code is to be worth the paper it’s written on, far more needs to be done to enforce the rules and protect vulnerable people who are getting caught in a downward spiral of debt.
‘We welcome more robust credit checks but also want to see a cap on the amount that lenders can charge for defaults and an end to extortionate fees. We also want the Government to ensure the Office of Fair Trading has the resources it needs to properly police the industry.’