A new code of practice for payday lenders has been launched but consumer groups say it amounts to mere rebranding and doesn’t go far enough to protect borrowers.
The code was agreed following lengthy negotiations between the payday loan industry and government.
Four trade bodies – the Consumer Finance Association, the British Cheque and Credit Association, the Consumer Credit Trade Association, and the Finance and Leasing Association – have agreed to the new rules.
Together, these organisations represent 90 per cent of payday loan companies.
The code of practice requires lenders to explain clearly how a payday loan works and to give an example of the price for each £100 borrowed, including fees and charges, which can soon bump up the cost of the loan.
They must ensure a customer can afford the loan by carrying out a thorough assessment and credit checks, and must not put pressure on customers to take out the loan, or to roll-over an existing loan.
Lenders must explain clearly how a continuous payment authority works and give three days notice before they recover payments through this method.
They must also freeze interest and charges if a customer is in financial difficulty, in order to help customers avoid falling into a spiral of debt.
Consumer group Which? said that the new code of practice amounted to merely a rebranding of existing rules.
Richard Lloyd, executive director of Which? said: “This falls 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.”
Separately, retirement income specialist, Primetime Retirement, has warned that a growing number of people aged over 55 are being forced to turn to payday loans in an effort to make ends meet.
With retirement incomes falling due to low annuity rates, stagnant interest rates and high inflation, 8 per cent of people aged over 55 have taken out high-interest short-term loans, and now owe an average of £163.
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