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Friday 4 Oct 2013 5:58 AM
06:00 Friday 04 October 2013
Written byNATALIE ROBINSON
Worried couple doing their accounts in the living room
Authorities in Britain have proposed new regulations to curb payday lending – firms that offer short term loans with high interest rates.
A number of restrictions were announced by the Financial Conduct Authority (FCA) yesterday. These include limiting the number of times a loan can roll over to twice. Borrowers who are extending their loan would also have to be told about free debt advice.
The number of times a continuous payment authority, where the company can take out an amount from your bank account per month without permission, will also be limited to two.
People who would like to borrow money will also be subject to a mandatory affordability check and payday loans may be forced to carry a risk warning to advise about the dangers of debt on their adverts, with the FCA able to ban any which they believe are misleading.
Chief executive of the FCA, Martin Wheatley, said: "We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don't want to stop that happening.
"But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower's account.
"Today I'm putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking."
The Citizens Advice Bureau in Cambridge often sees people who have struggled with payday loans. They recalled a woman with mental health issues who owed £247 to a payday loan company. She paid back £100 at the beginning of the month which left her with no money to live on and a bad credit reference. The CAB said it "should have been obvious" to the payday lender that she would be unable to pay the loan back and charges on her account continued to mount.
Kate Flannery from the Citizens Advice Bureau in Cambridge, said: "It's getting to the time of year when budgeting is really important. Our debt client numbers soar in January when the bills come in after Christmas.
"We have been campaigning for a long time to make these changes to payday loans so we are really delighted.
"We think it will really help people to not get into bother. We believe they need better regulations because we see what happens when people get into trouble."
Cambridge Citizens Advice Bureau is also running a #paydaywatch campaign on Twitter so they can collect evidence to be used to influence policy makers. So far 60,000 people nationally have been reached by the campaign.
Ms Flannery added: "This has involved gathering evidence from our debt clients, helping them prioritise their debts, and now also to help them to manage their budgets better so they don't come back to us."
Cambridge has always worked hard to provide help for people in financial difficulties in the area. In 2009, a £400,000 scheme by the Citizens Advice Bureau and Cambridge Housing trained up to 400 people as debt advisors.
Ms Flannery also highlighted the alternative of becoming a member of a credit union. These are not-for-profit financial organisations which members can save with and also borrow with affordable rates.
She added: "Members of a credit union organisation can encourage people to save money. If they need to borrow the amount they pay back is capped on what they can pay back. The unions are regulated by the FCA so all money is secure."
For more information on the Cambridge Citizens Advice Bureau, go to cambridgecab.org.uk.
Nationally, four million people are likely to take out a payday loan in the next six months.
The Citizens Advice Bureau has seen a ten-fold increase in the last four years in the number of people receiving help to manage their debts including a payday loan.
The Cambridge branch offers support to people in areas including debt advice, money advice, income maximisation - making sure people are claiming the benefits they are entitled to - and financial capability.
They have seen a number of clients with mental health issues come to them with problems in handling a payday loan.
The bureau says that vulnerable people are particularly at risk to falling victim to the high interest rates and what they say are often portrayed as "an easy option to deal with priority debts and financial emergencies".
Findings found that seven out of ten borrowers felt under pressure to extend their payday loans.
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