The FCA is considering capping charges on payday loans as part of a wide-ranging clampdown on the sector.
The FCA has today set out how it plans to regulate consumer credit firms from April 2014, when it will take on responsibility for more than 50,000 firms who have existing credit licences.
The regulator has proposed capping the number of times a payday lender can rollover loans to two in order to protect consumers from high charges.
In addition, the FCA wants to limit the number of times a payday lender can take money from a customer’s bank account using a continuous payment authority to two.
The regulator stopped short of capping prices on payday loans at this stage but will revisit the idea after it has taken over regulation of the sector.
The FCA says: “We considered whether it would be appropriate to introduce a limit on how much interest firms can charge on a loan – so how much it costs a customer to have credit. However, at this stage we don’t believe we have enough evidence or information to fully understand the implications of doing this.
“From April 2014, we will have the power to gather information from consumer credit firms and we will work closely with the other competition authorities to develop comprehensive evidence so we can consider whether structural changes, like price capping or setting maximum loan amounts, are necessary to ensure a competitive market that delivers better outcomes for consumers.
“We remain concerned at the treatment of customers in financial difficulty, particularly in relation to fees and charges. We will consider carrying out a thematic review of market practice in this area once firms have transferred to the FCA.”
FCA chief executive Martin Wheatley says: “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.”