Is the jig up for payday lenders?

A cowboy and a horse
The Financial Conduct Authority, yesterday
"It's important the FCA doesn't pull any punches with payday lenders and delivers on its commitment to ensure a fair market for all consumers" Gillian Guy, Citizens Advice
  • | by Emily Bater

The Financial Conduct Authority (FCA) is going big guns in its war against payday loan companies, threating to "take out" those who don't follow stricter new rules.

The FCA is now the regulator for credit providers and debt management companies, taking over from the Office of Fair Trading (OFT). Its first move will be to carry out a review looking at how payday lenders treat their customers when they are in difficulty.

As much as we enjoy imagining the FCA as a cowboy in the financial Wild West, Colt 45 in hand, what does this move in regulation mean for payday lenders who have in recent months been trying to clean up their image, if not their act?

Greater powers

The FCA is no toothless watchdog (or gun-less cowboy) - it has greater powers than the OFT, including unlimited fines, ordering refunds and banning misleading advertising.

Its new rules include limiting the number of times a customer can rollover a loan, controlling attempts to extract repayments from borrowers' bank accounts and improving affordability checks.

'Debt sentence'

According to new figures released by Citizens Advice, four in five payday loan customers struggle to repay their loan and aren't told about free debt advice, despite promises from lenders to do so.

A payday loan is a "debt sentence" for many, said Citizens Advice chief executive Gillian Guy.

"Consumers who are looking for a bit of money to tide them over need a fair and competitive market to engage with not one that seeks to exploit them.  The stern warning and tough rules from the FCA need to be followed with strong enforcement action. 

"Lenders found to [be] breaking the rules and harming consumers should be immediately thrown out of the market. It's important the FCA doesn't pull any punches with payday lenders and delivers on its commitment to ensure a fair market for all consumers," said Guy.

The new regulator has made it clear that payday lenders will be shut down if they fail to comply with the new rules.

Consumer watchdog Which? Has been calling on the FCA to crack down on poor lending since last October, when it launched its 'Clean up Credit' campaign.

Richard Lloyd, Which? executive director said: 'This review is another encouraging sign the FCA is showing it means business and won't tolerate unscrupulous lenders.

'We'd like to see a ban on excessive fees and charges when borrowers default, which can be as high as £30. These charges should reflect lenders actual costs.'

In July, the FCA will consult on a cap on the total cost of credit for all high cost short term lenders, to be implemented in early 2015.'s money guru Matt Sanders said: "The recent change over and announcements are all encouraging moves that show the FCA means business and is acting in the interest of consumers. It's clear that unscrupulous or unethical lenders are not welcome in the market and there will be severe punishment for those who step outside the lines."

"The lines have been drawn out to not only protect those who find themselves in an unmanageable situation but to also help prevent many from entering consumer credit agreements that they simply can't manage."

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