Conclusions and recommendations
Recent development
1. We
welcome the increased focus, across the political spectrum, on
the payday loan sector. Both the Government and the Official Opposition
are aware that changes need to be made in this area. While we
welcome these initiatives, we believe that further action, including
stronger regulation, is necessary to protect consumers. (Paragraph
14)
Responsible lending and credit checking
2. We
welcome the FCA's proposals to adopt the OFT's affordability guidance.
However, we remain concerned that payday loan companies will continue
to be allowed to adopt "an affordability test suitable to
their business". While the FCA is right to concentrate on
"higher-risk" firms we recommend that all payday loan
companies should be required to resubmit their affordability tests
to the FCA for approval before they can continue to work in the
sector. (Paragraph 23)
Real-time data
3. It
is clear that for short-term loans, a real-time database is a
key tool for assessing the affordability of loans and whether
individuals are applying for multiple loans. It is also possible
that this greater transparency will increase competition in the
sector and drive down costs for the consumer. Despite the sector's
apparent support for real-time data sharing, little progress has
been made. We recommend that the FCA make clear to the sector
that if real-time data-sharing has not been established by July
2014, the FCA will mandate its use as a condition of trading in
the sector. (Paragraph 29)
4. Six-monthly activity
reports from payday lenders will help the FCA assess the market
and the working practices of companies. However, we believe that
more up to date data is necessary for the FCA to discharge its
duty of oversight. We therefore recommend that the FCA has full
access to any data-sharing programme established by the sector.
(Paragraph 30)
Rolling over of loans
5. Payday
loans should only be considered as a solution to a short-term
financial shortfall. A limit of two roll-overs, while a welcome
development, is not a short-term fix as it would represent a 3-month
loan. Therefore, we recommend that the FCA sets a limit of one
roll-over for each payday loan. (Paragraph 38)
Continuous Payment Authorities
6. We
agree with the FCA's proposals to limit to two the use of the
Continuous Payment Authority by payday lenders. We recommend that
payday lenders be required to give 3 working days notice before
using a CPA and that each notice sets out, at the start, the right
of a customer to cancel the CPA. (Paragraph 51)
Advertising
7. We
welcome the FCA's proposals to require all payday adverts to include
both a "health warning", and directions to debt advice
services. We recommend that these warnings be subject to the same
requirements for prominence as APRs and that the "health
warning" should be repeated at every stage of the application
process. (Paragraph 64)
8. We further recommend
that the FCA include the warning that the use of payday loans
could affect an individual's credit rating for other financial
products, including mortgage applications, should evidence support
that position. (Paragraph 65)
9. Research undertaken
by Ofcom has shown that payday loan advertising is prevalent on
daytime television and children's channels. We do not believe
that these are appropriate channels for payday loans. We recommend
that payday loan adverts are banned from programming aimed at
children. (Paragraph 66)
Referrals and marketing
10. Anecdotal
evidence from consumer groups and others has demonstrated that
unsolicited marketing or brokering of payday loans through texts
and emails is an increasing problem. However, there is not yet
a sufficient evidence base to understand who is driving this market,
which groups are being targeted and when they are sent. (Paragraph
74)
11. We recommend that
the FCA highlights the '7726' short code in all its literature
on payday loans and discusses with the Information Commissioners
Office how texts on payday loans could be disaggregated to establish
the extent of bad practice in the sector. If this evidence base
demonstrates inappropriate targeting or marketing we recommend
that the FCA moves quickly to ban the brokering of payday loans
through email, texts and other personal mobile devices. We also
recommend that the FCA devises and issues a guidance note for
payday lenders along similar lines to that established by the
Claims Management Regulator in its Marketing and Advertising Guidance.
(Paragraph 75)
12. We further recommend
that the FCA conducts a holistic review of the impact of payday
loan advertising, the practices of referrals companies working
in the payday loan sector and their use of websites advertising
payday loans. That review should inform a stricter code of practice
in the advertising and marketing of short-term loans. (Paragraph
76)
Debt Advice
13. Debt
charities and consumer organisations have made clear that number
of people seeking debt advice for payday loans is increasing at
an alarming rate. When payday loans come under the authority of
the FCA, they will be subject to a levy. This must be additional
to the existing levy and not used to off-set the level of payments
by other financial organisations. We recommend that the levy paid
by payday lenders is ring-fenced by the Money Advice Service solely
for the funding of front-line debt advice services. (Paragraph
80)
| 
