After a series of intensive discussions with the Government, four Trade Associations who were representing over 90 percent of the payday and short-term loan industry agreed to make the changes to their codes of practice by 25th July 2012 so as to provide better protection for consumers.
The agreement comes as the Government responds to the BIS Select Committee’s Report into Debt Management and sets out further actions on payday loans, consumer credit regulation and debt management.
The commitments made by the industry on payday loans include:
- a good practice customer charter explaining how the loan works and the costs involved;
- a commitment to inform customers three days before money is withdrawn;
- increased transparency about loan repayment so that consumers can make informed decisions and are not surprised by hidden payments;
- more help for customers in financial difficulty by freezing charges and interest;
- robust credit and affordability assessments to ensure loans are suitable for the customer’s situation; and
- effective compliance monitoring by the Trade Associations to root out poor practice in the industry.
Business Minister Norman Lamb said:
“Today’s agreement by the payday lending industry is a step in the right direction and I welcome the commitment of the four Trade Associations to strengthen their codes of practice. The Government sees it as vital for the industry to deliver real enhanced consumer protections and to provide more clarity through a good practice customer charter. “
“However I want to see further action– in particular, on the use of continuous payment authority. I expect the industry to respond effectively to any recommendations which emerge out of OFT’s investigations. I also want to make sure that the industry can self-regulate effectively to drive out rogue companies.”
“Payday loans should only ever be used as a short-term financial stop-gap, not as a long-term solution to financial difficulties. I would urge people to think carefully before taking out a short term loan and to consider affordable alternatives such as their local Credit Union.”