The number of people in financial difficulty due to pay day loans has risen by 42% in the last 6 months, according to StepChange debt charity.The charity is now calling for the Financial Conduct Authority (FCA) to take further action to ensure better protections for financially vulnerable consumers.
Complaints from payday loan customers about credit broking services have doubled over the last 12 months, according to the Financial Ombudsman Service (FOS).
Credit broking websites are essentially middlemen between the payday loan company and the customer, and they are designed to help people find a loan that suits their needs.
The Payday loans market lacks competition and is resulting in many customers paying more than they need to, according to the Competition and Markets Authority (CMA).
The CMA found that this lack of competition could be resulting in a typical customer’s annual bill increasing by around £30 to £60.
The Financial Conduct Authority (FCA) is to take over regulation of credit providers for debt management firms, credit cards, hire purchase, debt management firms and debt advisers.
Until now the Office of Fair trading was the regulatory body for these industries. However the FCA has tougher powers such as unlimited fines, ordering refunds and banning misleading advertisements.
Debt charity, StepChange, has said the that the number of people seeking help with payday loans has soared by 82pc in the last year, with a total of 66,557 people who took out a payday loan seeking help from the charity in 2013.
Sainsburyâ??s has cut the borrowing rate on personal loans of between �£7,500 and �£15,000 to 4.6%, beating both Marks and Spencer (4.7%) and Tesco (4.8%) to the market leading rate. This news comes at a welcome time for borrowers, as rates on personal loans continue to fall despite the Government-led Funding for Lending scheme ending.
The FCA said it would be looking into a series of initiatives, including warnings about the danger of debt on adverts, limiting the amount of times the lender can action a continuous payment authority (CPA), limiting the number of loan rollovers, and forcing lenders to conduct a comprehensive affordability check on consumers before a loan is approved.
Payday lender Wonga, a company which has come under stark criticism about how it operates, has posted record profits, and has become one of the most popular lenders in the UK.
Within the last 12 months, Wonga has been repeatedly criticised about the service it provides to customers, particularly the hugely inflated interest rates that are charged on loans when customers are late making a repayment.
The Office of Fair Trading (OFT) has referred payday lenders to the Competition Commission after serious concerns about the integrity of the industry were once again raised. The main concern is that competition between lenders has “deep-rooted problems”, and there are barriers limiting consumer’s ability to switch between lenders.
Companies’ which provide consumers with ‘payday loans’ are to face new restrictions on advertising their service, after fears that consumers are being harmed by serious problems in this sector.
New rules will also come into effect related the sharing of information and data of applicants, forcing payday loan companies to communicate with each other in order to stop applicants taking out multiple loans.