Payday lenders have escaped an outright advertising ban but could be forced to place “risk warnings” on their ads to warn borrowers about the dangers of debt, in new rules being proposed by the financial regulator.
It is estimated that the top five lenders spend more than £36m a year on advertising; a fact which has not been lost on the Advertising Association which has slammed a number of local councils for introducing advertising bans in their area.
In June, Plymouth Council became the first to regional authority to outlaw the controversial lenders, while Islington Council has since followed suit. Now several others, including Cheshire East and Medway, are considering implementing similar measures.
Under the Financial Conduct Authority (FCA) plans, the regulator would be able to outlaw any ads it did not approve of.
Other measures include a ban on extending or rolling over loans more than twice, the introduction of free debt advice for those extending a loan and lenders will be forced to drop products that are not in the best interests of consumers.
FCA chief executive Martin Wheatley said: “Today I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”
He added: “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.
“We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don’t want to stop that happening. But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower’s account.”
The FCA said the risk warnings would be similar to those used by mortgage lenders, which remind borrowers that their home may be repossessed if they fall behind with payments.
After the FCA takes over as the new regulator for consumer credit, in April 2014, it will also consider whether to put a cap, or limit, on the interest rates that lenders can charge.
Payday ad ban to cost industry £36m
Ad body blasts payday loans ban
‘God’ takes on payday loans
Cash Lady axes bankrupt Catona
Payday firms face outright ad ban
Katona back in new Cash Lady ad
Cash Lady ‘easy money’ ad slated
Payday loans ‘piling on agony’
Call for realtime credit database
Payday firms face ad clampdown
ASA blasts Pounds to Pocket ad
Wonga targets online shoppers
Payday loan firms face OFT probe