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FCA urged to tighten payday rules after credit check failures
New research has claimed that some payday lenders are still failing to carry out sufficient credit checks.
Advice charity, Citizens Advice, found that 27% of payday loan borrowers had not or could not remember being asked about their financial situation or ability to repay a loan.
The evidence, based on a survey of over 400 people who have attempted to use payday loans since January 2015, revealed that 78% of those who did not go through credit checks faced difficulty paying back their loans, compared to just 40% of those who did have checks.
Gillian Guy, chief executive of Citizens Advice, said: “Irresponsible behaviour by some payday lenders is trapping people with loans they can’t afford.”
Citizens Advice claimed that it had helped with 45% fewer payday loan problems since the Financial Conduct Authority (FCA) introduced a cap on payday loan interest rates and fees in January 2015.
According to the charity, almost 40% of payday loan firms had left the market since October 2013.
While Citizens Advice recognised “significant” improvements following the FCA’s crackdown, it has now urged the regulator to turn its guidance on responsible lending into rules, with credit assessments requiring proof of income and expenditure as a minimum.
Gillian added: “New measures and guidelines from the FCA have helped to clean up the market and the number of people turning to us for help has dropped significantly.
“But it's clear some payday loan firms are flouting the FCA’s guidance and selling people loans costing hundreds of pounds that they struggle to pay back.
“The time has come for the FCA to turn its guidance into rules - forcing every single payday lender to carry out rigorous financial checks on potential borrowers to prevent people falling into deepening debt.”
Since the FCA’s payday lending price cap, Google has banned payday loan adverts to protect its users from alleged “deceptive” financial products.
In July, the Committee of Advertising Practice also ruled against scheduling restrictions on the advertising of high-cost, short-term credit following an extensive review.
Anyone thinking about taking out a payday loan or who is struggling to keep on top of their finances can get help from Citizens Advice either online or by visiting a local service.
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