These companies often charge incredibly high interest rates, some as much as 4,000%
Restrictions are set to be put in place to ensure they do not attract those who are unable to pay them back.
The desire for fast, short-term loans has increased in recent years due to the recession leaving many short before payday. The attraction of fast money and a ‘no questions asked’ attitude often blinds people from the extortionate interest rates.
As this industry grows, so do the concerns regarding debt. One charity has reported that issues with payday loans doubled in 2012. The government has been put under pressure to clampdown on payday lenders and is set to work with the Advertising Standards Authority and the industry itself to ensure these companies do not attract unsuitable candidates.
Lenders may face restrictions on their television advertising with limitations to the number of times they can advertise and the time of day they can advertise. They may also be required to show their APR in a clearer way on all advertising.
The government will also make these companies share information to ensure people aren’t taking out several loans from different companies. Recently the charity National Debtline said it is hearing from clients with more than 10 different payday loans against their names.
This news has come after a year-long review looking at whether a cap on the cost of credit could help protect consumers. Some campaigners are suggesting that a cap could help to prevent some of the poor practice currently taking place in the industry. Others have asked for better affordability checks and to ban the use of continuous payment authorities (these allow lenders to continue to try and collect missed repayments from the borrower’s card).
A consultation will take place regarding the powers the new Financial Conduct Authority will have when it takes over regulation in the sector from the OFT in April 2014.
If you are struggling with debt, speaking to a qualified accountant could help you get your finances in order. To find out more, please see our Personal Finances page.
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