Payday loan watchdog barks… but doesn’t bite: summit fails to commit to reigning over crippling interest rates
Payday loan watchdog barks… but doesn’t bite: summit fails to commit to reigning over crippling interest rates
- Seniors, students and children targeted by TV promotions
- Cash Lady ad featuring Kerry Katona honored because she herself was declared bankrupt
- But there will be no ban on skyrocketing interest rates despite warnings from charity
A peak on payday loans was broken yesterday without any commitment to bring crippling interest rates under control.
The new financial regulator has only said it will consider banning ads targeting students or the unemployed.
More drastic measures – such as shutting down companies, including Wonga, which charge exorbitant interest rates of up to 5,000% per year – will not be taken.
The top 50 companies were called for talks in Whitehall yesterday with Consumer Secretary Jo Swinson.
Advertisement: Elderly puppets feature in promotions from Wonga, which charges 5,000% interest rates
Campaigners say interest rates – which can exceed 5,000% a year – are the root of the misery suffered by hundreds of thousands of people who take out loans.
Subsequently, Martin Wheatley of the Financial Conduct Authority said he was concerned about some of the ads being run by payday loan companies.
He cited one featuring Kerry Katona, which he said was inappropriate as the former Atomic Kitten star had been declared bankrupt.
He said an advertising ban would be an option to protect vulnerable groups of people.
“This is clearly an option that could be considered if it was felt that the way advertising was used could not be addressed by measures other than that,” he said.
Warning: Cash Lady ads featuring former pop star Kerry Katona have been singled out by regulators for being irresponsible
“I think there are a lot of problems with advertising – this is something that has been commented on, targeting young people, students, children in some cases.
“If payday loan companies are really targeting a particular income bracket – people with jobs – why are they advertising on television during the day? “
Regulators and charities also attended the summit, many of whom accuse payday loan companies of lending to people who cannot afford to repay, and then charging them exorbitant interest rates.
Treasury Minister Sajid Javid said the FCA takeover would mark a “radical change” in the regulation of the industry.
“They now have to face a regulator with real teeth. They’re going to feel the regulator’s hand on their shoulder and they better get used to it, ”he said.
“If there is evidence of irresponsible lending, bad practices, dishonest lenders, the regulator has very important power to intervene independently in this market and to change the rules.
“Even to get clearance under the new regime, the regulator will look at the business model of each buffer day lender, make sure they are happy with that business model, that it is sustainable, that it makes sense, that he’s responsible. “
The meeting at the Department for Business, Skills and Innovation comes after the Office of Fair Trading (OFT) announced last week that it was referring the £ 2bn industry to the Competition Commission .
The OFT said consumers who couldn’t afford to repay their loans on time found themselves trapped with one company when their loans were rolled over.
He is also concerned that companies are emphasizing speed of lending rather than cost, and that the pressure to grant loans quickly may encourage lenders to “skimp” on affordability checks.
He said that some companies’ business models appear to be based on customers taking loans that they are forced to renew because they cannot afford them. This then leaves the customer trapped with this business as they would have a hard time moving on to someone else.
The OFT found that up to half of lenders’ income came from additional fees and interest from rolled over loans.
Consumer group Which one? published a study claiming that nearly a million people are forced to take out high-interest loans to get by – many using them to pay for essentials such as food and fuel.
