Payday loan self-regulation may be more of a stick than they bargained for

Payday loan self-regulation may be more of a stick than they bargained for

Payday loan self-regulation may be more of a stick than they bargained for

Payday lending, or high cost short-term credit providers (you know – Wonga, QuickQuid, et al with their 4,000% APRs) agreed a revised system of self-regulation last week.

While it’s far short of what’s needed, and doesn’t touch the cost of credit, at least it scrapes a little mud off this dirty industry. Better still, I suspect this new regulation is stronger than the industry perhaps realises. (See our Payday Loans guide for the best buys.)

The payday loan industry has been desperate to stave off hardcore regulation, which campaigning MPs like Stella Creasy and Yvonne Fovargue have been pushing for. As – I suspect – an attempt to fend that off, four trade associations have agreed a payday loan customer charter with the Government as part of their new codes of practice. The improved codes of practice include promises to:

  • Increase transparency about loan repayments, so consumers can make informed decisions and are not surprised by hidden payments.
  • Provide more help for customers in financial difficulty by freezing charges and interest if a reasonable repayment plan can be agreed, or after a maximum of 60 days of non-payment.
  • Undertake robust credit and affordability assessments to ensure loans are suitable for the customer’s situation.

All pretty standard practice for the rest of the lending world – but good that these guys will follow suit.

Why this could be stronger than they think

On the surface this is a relatively weak self-regulation. It’s only policed by the trade bodies themselves, and doesn’t cover 100% of the market.

Yet payday lending is covered by the Financial Ombudsman Service. When it adjudicates, it can look at three pieces of information:

  • The law.
  • Whether customers been ‘treated fairly’.
  • Standard industry practice.

I would argue this revised agreement may create a standard industry practice, which would mean even companies that aren’t signatories can be done for not obeying it – and instead of complaining to their trade bodies, you can make the complaint to the Ombudsman.

I put this to the Ombudsman, but it says it can’t speculate on how future cases might be treated and whether or not the new codes will be used as a basis for standard industry practice until it’s seen a few cases about firms who have and haven’t added the revised codes. But it would welcome any cases where a consumer feels they’ve been treated unfairly or unreasonably.   

There is precedent for this. The credit card rate-jacking rules were created by an agreement between credit card trade bodies and the government just like this, and are now enforceable by the Ombudsman.

So I would encourage anyone who’s had problems with payday lenders to complain (and I’d also encourage everyone to avoid these loans wherever possible) and let’s see if we can turn this jelly regulation into stone.