The Welsh Government has called for tougher action on high interest payday loans companies after the new regulator said the “clock is ticking” for such lenders.
The Financial Conduct Authority takes over from the Office of Fair Trading for the regulation of consumer credit on April1 2014.
Martin Wheatley, the FCA’s chief executive, said: “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. That is why we’re imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities.
“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.”
Jeff Cuthbert, Caerphilly AM and the Welsh Government’s Communities and Tackling Poverty Minister, said the FCA’s moves were in the right direction but more needed to be done.
He said: “Communities across Wales are facing a squeeze on their incomes and the most vulnerable are starting to feel the full force of cuts to welfare. I am deeply worried that this combination will mean more and more people being tempted by these loans simply to make ends meet.
“There are so many reasons to be concerned by the growth of payday lenders, from the way they assess a person’s ability to afford a loan, to the torrent of advertising that can be seen in our newspapers, on TV and online.
“I want to see regulators and the UK Government take tough action on this sector.
“The Welsh Government is supporting the expansion of credit unions as an alternative to high-rate loan providers .We have a target of getting 6% of the Welsh population being credit union members by 2020.”
Jeff Cuthbert is right when he says that the FCA needs to do more to regulate these, so called, 'pay day loan companies.' I was surprised to find that these firms lend to students on zero income as they count a student loan as 'income'; using a loan as collateral for another loan strikes me as bizarre.
It is also not just students or benefit recipients that are hit hard but also the low paid who have seen their wages eroded over recent years and are tempted by the offer of instant money.
If people are in debt to these companies and unable to pay the loan off they should on no account take out another 'pay day' loan but instead should inform the company that they refuse to pay the debt. This, according to people interviewed by the BBC this week, leads to their debt being handed to a debt collection agency. They are better off dealing with a debt collector who will usually be willing to suspend interest payment in return for an undertaking from the debtor to pay off the amount owed in installments.
My advice is not to take out loans with these companies at all. I also do not share the Welsh Government's keeness for credit unions. The interest rates are not as high as the 'pay day' firms but are still far higher than that of a bank or building society. If at all possible people should open an account and demonstrate an ability to save a small sum at regular intervals. This will help them qualify for a loan at lower interest than a credit union, who also stipulate that you must save with them before applying for a loan.
"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."
I share Richards feelings in not being a huge fan of such companies all together. I suggest that the Welsh Assemby set up a payday loan company with lower interest rates and easier terms than other companies with the aim of pushing them out of the market and forcing them to lower interest rates.
The danger would be in it's managing. It would have to be apolitical, profitable and not be scared to to take action against those who refuse to pay citing the loan as an extension of state handouts.