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Payday loan rules come into force

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by Jan Harris
Payday loan rules come into force

A new code of practice for payday loan companies came fully into effect today.

The code, devised by the Consumer Finance Association (CFA), is designed to curtail practices that could cause people to fall further into debt.

People applying for a loan must be given clear information about the way a payday loan works and an example of the price for each £100 borrowed.

Payday lenders should now limit the number of times a payday loan is rolled over to three.

They should give customers who are struggling to repay their loan a minimum of 30 days to get their finances into order.

Lenders should also freeze interest on a loan as soon as they know a customer is experiencing financial difficulties.

The code is based on a charter agreed between the payday loan industry and the government in July.

“While this is a significant step forward for the responsible members of the payday industry, it is far from the end of the journey,” said Russell Hamblin-Boone, chief executive of the CFA.

“We will be introducing an independent monitoring framework and continue to work with the government, regulator and consumer groups to set high standards.”

The code is voluntary but firms who fail to adhere to the guidelines will be expelled from the CFA, which represents lenders.

The OFT is continuing with its own investigation into the industry and is formally investigating a number of payday lenders over aggressive debt collection practices.

Consumer organisations such as Which? are calling for a cap on the amount that lenders can charge for defaults and for fees to be reduced.

The Bishop of Durham, the Right Reverend Justin Welby, today joined Labour in a bid to stop payday lenders charging interest rates of up to 4,000 per cent.

Bishop Welby, who is to replace Rowan Williams as Archbishop of Canterbury, has signed an amendment to the Financial Services Bill, which could bring in a cap on payday loans.

The amendment will be debated in the House of Lords on 28 November 2012.

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News posted: November 26, 2012

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