LONDON, Feb 28 (Reuters) - Britain’s financial watchdog unveiled a set of new rules to crack down on pay-day lenders on Friday, responding to concerns it is not doing enough to discipline an industry accused of preying on the country’s poorest households.
The Financial Conduct Authority said it would pay much closer attention to the 50,000 UK lenders offering short-term loans intended to tide borrowers over until payday, and impose swift fines on those not putting customers’ interests first.
Britain’s consumer credit market has boomed in recent years as benefit cuts squeeze poor households’ budgets and banks reduce their lending. The UK’s consumer credit market is now worth 200 billion pounds ($333.42 billion).
But public criticism of the firms has also grown. Politicians, poverty-focused charities and the Church of England say they are worried that the conditions of these loans - one of the biggest payday lenders, Wonga, charges an annual interest rate of 5,853 percent - only tip poor households into more debt.
“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line,” said FCA Chief Executive Martin Wheatley on Friday.
“We want to be sure that the market works well when people need it - whether that’s for one day, one month or longer.”
The new rules mean lenders can only roll over a loan - extend its term or replace it with a new one to pay an outstanding balance - twice, and may only dip into a customer’s bank account or credit card twice to obtain payment after normal collection has been unsuccessful, a practice known as continuous payment authority.
Companies will also be required to give customers information on how to get free debt advice.
However, the FCA came under fire for not going far enough because it did not impose a cap on interest rates. The watchdog said in October, when it first outlined its proposals, that a cap could make it harder for people to borrow and push them into the hands of loan sharks.
“We continue to see problems related to irresponsible lending, spiralling debts and the unfair treatment of those in financial difficulty and it remains unclear as to whether these rules will truly fix these issues,” said Peter Tutton, head of policy at debt charity StepChange.
StepChange on Thursday said the number of people contacting it seeking help with payday loans rose to 66,557 in 2013, up 82 percent on 2012.