MP criticises new payday loan regulations
The government has gone some way to stop payday loan customers racking up unmanageable levels of debt, but MP Stella Creasy said the new rules are of ‘limited value’.
Trade associations representing around 90 per cent of payday lenders have agreed to introduce new codes of practice by 25 July.
Under the new regulations, payday loan companies belonging to the trade associations should freeze charges and interest on a debt no later than 60 days after a borrower stops making payments.
They should also freeze charges for borrowers in difficulty, as soon as an acceptable repayment plan is in place.
It is often the exorbitant charges for late payment which send borrowers into a spiral of debt, and the rules should help to stop this happening – as long as the companies adhere to them.
Lenders are also required to check that a customer will be able to repay a loan before it is agreed.
Ms Creasy expressed concern that payday lenders would fail to implement the new regulations, which are voluntary, not statutory.
She said: “Anyone who has seen the way these companies are targeting UK consumers will know that asking them to police themselves is like Red Riding Hood asking the wolf to babysit Grandma.
“We know self regulation is of limited value in an industry with so many different companies and growing so rapidly.”
Business Minister Norman Lamb also cautioned borrowers over payday loans.
“Payday loans should only ever be used as a short-term financial stop-gap, not as a long-term solution to financial difficulties,” Mr Lamb said.
“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,” he continued.
The trade bodies signed up to the new agreement are the Consumer Finance Association, the Finance & Leasing Association , the British Cheque & Credit Association and the Consumer Credit Trade Association.