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06 March 2013

Government takes action to tackle payday lending concerns

Payday lenders could face new restrictions on how they advertise and a new code of practice, under fresh plans announced today by Consumer Minister Jo Swinson and Economic Secretary to the Treasury Sajid Javid. This comes after new evidence shows that problems in the industry are harming consumers.

The measures announced today form part of wider Government efforts to strengthen the way consumer credit is regulated. In addition, Sajid Javid and Jo Swinson have also launched a consultation today confirming the Government’s intention to move regulation of consumer credit to the new Financial Conduct Authority (FCA) from April 2014, and provided further details of how the new regime will work.

Consumer Minister Jo Swinson said:

“The evidence of the scale of unscrupulous behaviour by payday lenders and the impact on consumers is deeply concerning. 

“The Government is committed to tough action to tackle these problems. The Office of Fair Trading’s (OFT) enforcement action will stop payday lenders taking advantage of those in financial difficulty. In April 2014, we are giving responsibility to regulate this industry to the FCA, who will have more rigorous powers to weed out rogue lenders.

“The Government also wants to see tough action to clampdown on the advertising of payday lending, and will start immediate work on this. The Government will work closely with the OFT, Advertising Standards Agency, Committees of Advertising Practice, and industry to make sure advertising does not lure consumers into taking out payday loans that are not right for them.”

Economic Secretary to the Treasury Sajid Javid said:

“With the enforcement action and unprecedented changes to the regulation of consumer credit announced today, the Government is sending a clear message to lenders that if they do not comply with the rules, action will be taken.

“The Government is introducing a fundamentally new approach to regulating consumer credit, which will ensure that irresponsible firms and bad practice will have no place in the consumer credit marketplace. Consumers can have greater confidence that the new FCA will intervene early and decisively in their interests – thanks to its more focused remit, objectives and powers.”

An independent research report from the University of Bristol was also published today by Government on the impact of a cap on the total cost of credit cap in the high cost credit market. Separately, the Office of Fair Trading have published today their final report on payday sector compliance. Both reports clearly show there is significant evidence of consumer detriment in the high cost credit markets.

Working together with regulators, the Government is announcing immediate, short term and longer term action to tackle problems in the payday market head on, including:

OFT Action

The OFT will today (6 March 2013) publish the final results of their investigation.

The 50 lenders on notice account for 90 per cent of the market, after the OFT found problems with how they advertised, charged for, assessed and dealt with loans. They will need to fix the problems in their companies and report back to the OFT in 12 weeks. In each case, if the problems still exist at this point, they may be fined or have their licence suspended.

The OFT’s action responds to the findings of their investigation into how well lenders comply with the law, which uncovered serious problems with how loans are advertised, charged for, assessed and processed by lenders.

The OFT have announced that, subject to consultation, they will be referring the whole payday sector to the Competition Commission for a market investigation. If the Competition Commission find that the payday lending business model is flawed they can place restrictions on the market, including rules on advertising or interest rate caps.

New consumer credit regulator

The new consultation launched by Government today sets out the incoming Financial FCA’s new approach and powers for regulating the consumer credit market.

To protect consumers, the FCA will:

In addition, important consumer rights in the existing Consumer Credit Act will be carried forward to the new regime.

The new regime has been designed to offer stronger protection for consumers, but also to ensure that the system is proportionate to the different types of firms in the market, and that consumers continue to have access to the credit they need.

The Government will make sure that lower risk firms pay lower fees and are subject to fewer regulatory burdens, and that the vast majority of credit firms (which do not hold consumers’ money) are not subject to capital requirements.

Notes for Editors

1. The full consultation document is available on the Treasury website:

2. The period of consultation will run from 6 March 2013 to 1 May 2013.

3. The Bristol Report and Government response is published on the Department for Business, Innovation and Skills website.

4. The Government is transferring consumer credit regulation from the Office of Fair Trading (OFT) to the FCA in April 2014 as part of its wider reform of the financial regulatory regime.

5. The FSA has today published a consultation paper, which will set out the detail of the proposed regulatory regime and how the FCA proposes to apply its powers to the regulation of consumer credit.

6. To give firms time to adapt to the new regime, the FCA will allow firms two years to meet their full standards for authorisation.

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