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FCA considers charge cap in payday loans clampdown

FCA chief executive Martin Wheatley tells payday lenders “the clock is ticking” as he sets out plans for tough regulation of the sector.

The FCA is considering capping charges on payday loans as part of a wide-ranging clampdown on the sector.

The FCA last week 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, possibly through a thematic review.

FCA chief executive Martin Wheatley says: “We believe 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 are imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities.

“I am 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.”

Hargreaves Lansdown head of financial planning Danny Cox says: “The biggest issue with payday lenders is the rollover of loans so I am glad to see the FCA is clamping down in that area.

“We would also like to see the regulator really crack down on the advertising of these loans.”

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