Partner Article

Payday lenders pledge to improve codes of practice

Payday lenders have agreed to improve codes of practice to increase transparency and protect vulnerable borrowers.

After intensive discussions with the Government, the Trade Associations representing over 90% of all payday and short term loan businesses agreed to to add their Codes of Practice by 25 July 2012 to ensure better protection for consumers.

Commenting on the agreement, Business Minister Norman Lamb said: “Today’s agreement by the payday lending industry is a step in the right direction and I welcome the commitment of the four Trade Associations to strengthen their codes of practice.

“The Government sees it as vital for the industry to deliver real enhanced consumer protections and to provide more clarity through a good practice customer charter.

The commitments made by the industry include a good practice customer charter, increased transparency about loan repayments, more help for customers in financial difficulty by freezing charges and interest, robust credit checks to ensure loans are suitable for the customer’s situation and effective compliance monitoring to root out poor practices in the industry.

Mr Lamb has also called for further action, in particular the use of continuous payment authority, and the assurance that the industry can self-regulate effectively to drive out rogue companies.

He continued: “Payday loans should only ever be used as a short-term financial stop gap, not as a long-term solution to financial difficulties. 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.”

It is now anticipated that the compliance report will also require the industry to deliver further measures to address consumer detriment identified in this market.

The Government is also looking into giving the Office of Fair Trading new powers to suspend credit licences with immediate effect.

This was posted in Bdaily's Members' News section by Ruth Mitchell .