| LONDON, March 12
LONDON, March 12 Britain's financial watchdog
will review in April how payday lenders collect debts and impose
a cap from early 2015 on the sky-high interest rates criticised
by politicians and churches.
The Financial Conduct Authority said the review will be one
of its first acts next month when it takes on supervision of
about 50,000 consumer credit firms.
Of those, around 200 offer the short-term loans intended to
tide borrowers over until payday - a market now worth about 2.8
billion pounds ($4.7 billion).
FCA also said it will consult this summer on capping the
total cost of credit for all payday lenders from early next
year, a step forced onto it by the government.
Wonga, one of the biggest payday lenders, charges an annual
interest rate of 5,853 percent, a level that critics say tips
households into a deepening spiral of debt.
"Our new rules mean that anybody taking out a payday loan
will be treated much better than before," FCA Chief Executive
Martin Wheatley said in a statement.
"But that's just part of the story; one in three loans go
unpaid or are repaid late so we will be looking specifically at
how firms treat customers struggling with repayments.
"There will be no place in an FCA-regulated consumer credit
market for payday lenders that only care about making a fast
buck," Wheatley said.
Last month the FCA published new rules to regulate the UK's
200 billion pound ($332.55 billion) consumer credit market.
The FCA had initially resisted moves to cap interest rates,
saying it could drive customers into the arms of loan sharks but
the watchdog was overruled by the government.
Sajid Javid, a junior finance minister, said on Wednesday
that the FCA, launched in April 2013 to shake up supervision
found wanting in the 2007-09 financial crisis, has a clear
mandate to stop inappropriate behaviour.
"It is right that the FCA gets on with the job of protecting
consumers by taking tough action to address bad practice in the
payday market," Javid said.
"This work, alongside the new consumer credit rules
announced by the FCA and the cost of credit cap mandated by
government, will have a profound impact on protecting
The FCA said payday lending is a priority because six out of
10 complaints to the Office of Fair Trading (OFT) are about how
debts are collected, and more than a third of all payday loans
are repaid late or not at all.
The review will look at the different repayment options
available rather than piling on more pressure on borrowers or
simply calling in the debt collectors.
The watchdog will also visit the biggest payday lenders to
analyse their business models and culture.
It will assess the financial promotions of payday and other
high-cost short-term lenders and move quickly to ban any that
The FCA will also take on investigations from the outgoing
consumer credit regulator, the OFT, and consider whether it
should start its own for the worst performing firms.
The watchdog expects about a quarter of payday lenders will
exit the market rather than try to meet the FCA's new
Richard Lloyd, executive director of consumer lobby group
Which? said there should be a ban on excessive fees and charges
when borrowers default which can be as high as 30 pounds.
"These charges should reflect lenders' actual costs," Lloyd
The UK Competition Commission has found that payday lenders
issue about 10.2 million pounds in loans a year, with the
average loan sized at around 260 pounds.