Payday Loan Companies To Unveil Independent Regulator
The Consumer Finance Association (CFA) is to set up a high-powered panel with consumer representation to monitor its code of practice. The move comes after the Office of Fair Trading (OFT) set a three-month ultimatum for 50 leading lenders accounting for 90% of the market to change their practices or risk losing its licences.
The CFA’s members, with 70% of the market, are US chains Albemarle & Bond, Payday UK, Express Finance, The Money Shop and online lender Quickquid, along with Australian high street group Cash Converters, and Edinburgh-based The Cheque Centre, also trading as Cash Generators.
Russell Hamblin-Boone, the CFA’s chief executive who will lobby MSPs at Holyrood on Tuesday, said the lenders had become "the whipping-boy for issues of indebtedness", with particular agitation from some Scots politicians and councillors.
He said the lending cap being called for by some Labour MPs would only "take away access to credit which for the majority of people is working well.”
The OFT’s report on the £2 billion sector found lenders failing to assess affordability, using aggressive debt collection practices, and not treating struggling borrowers with forbearance.
It also referred the industry to the Competition Commission because of "deep-rooted problems" in marketing speed of access to loans, rather than the cost.
But the OFT says up to half of lender revenues come from loans that last longer and cost more because they are rolled over or refinanced, and which are effectively not open to competition. Mr Hamblin-Boone said the average loan length had already come down from 68 to 46 days.
He said the CFA code of practice meant loans could only be rolled over once, and lenders would freeze interest and fees for vulnerable borrowers, putting them into a long-term repayment plan.
They would refund automatic bank account deductions which caused difficulty, and work with reputable collection agencies.
Mr Hamblin-Boone said: "If you borrowed £100 and made no effort to pay it back whatsoever, the most it would get to would be £204.”
The larger lenders are in the market to move into the mainstream. They are seen as an alternative to credit cards, personal loans and overdrafts. They are not aiming to lend to people who can’t afford to pay back. "We are putting in a compliance regime around our code of practice, and appointing an independent panel who will oversee compliance visits by one of the big four accountancy firms.”
He added that the CFA was seeking a leading consumer figure as well as other professionals on the panel.
The National Debtline has said payday loan lending calls doubled last year to over 20,000 and in January it had one call every seven minutes its lines were open. Mr Hamblin-Boone said one reason may be that "reputable lenders are channelling people to them". He said: "The average customer is now in their mid-thirties, they are earning £17,500, they are already managing other credit products, they have credit cards and a mortgage or rent, and they are not the under-banked"
He said borrowers were often "able to discipline themselves better" in having to repay a third party to a deadline, rather than be tempted into making only minimum repayments on a credit card.
Mr Hamblin-Boone said there were some "slightly naive politicians" who didn’t understand that some online lenders (such as Wonga) were competing not on speed of approving loans, but on speed of delivery into bank accounts. He said borrowers were paying a premium for convenience, in the same way as "you can pay an extra £1.75 to take money out of a cash machine".
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